The Government has made clear that deficit reduction is its most urgent priority. On Monday, 24 May, the Chancellor of the Exchequer and Chief Secretary to the Treasury therefore announced that the Government would save over £6 billion from spending during this financial year. Included in that savings package were £1.166 billion reductions in grants to local government. I have today placed in the Library of the House information on the revenue and capital grants which will be reduced.
The Government is clear that deficit reduction, and continuing to ensure economic recovery, is the most pressing issue facing Britain. This will restore confidence in the economy and support the recovery. Advice from the Treasury and Bank of England is that it is better to start to make the reductions in the current financial year. Not to do so will simply delay the need for savings in future years, thereby compounding the impact on public services, including those delivered by local authorities, in the future. It is fair that local authorities make a contribution to the savings to enable Government to take immediate action to tackle the UK’s unprecedented deficit in this financial year.
It is time for a fundamental shift of power from Westminster to individuals and their communities. We want to end the era of top-down government by providing a radical devolution of power and greater financial autonomy to local authorities.
So we will reduce the performance management burden on local government through abolishing the Comprehensive Area Assessment and reducing ring-fencing of central government grants, freeing up resources to concentrate on local priorities and the delivery of essential frontline services. We are committed to a full review of local government finance, to giving councils a general power of competence, and to working with local authorities to freeze council tax in England for at least one year as outlined in the Coalition Agreement and seek to freeze it for a further year, in partnership with local authorities. All of this will help to create the shift of power from the centre to local people that we are determined to deliver.
I am absolutely clear about the importance of the services which local government provides. So we have been determined to ensure local authorities can shield their key frontline services.
The Government has looked at whether it is possible to focus the reductions on grants which have not yet been committed through grant determinations or other statutory restrictions. This has been possible to some extent. Some of the reductions occur in grants where there are underspends, where the money has yet to be allocated or where a grant determination has not yet been made. However, because of the scale of the contribution from local government, it has not been possible to achieve the necessary levels of reduction without reducing some allocations included in grant determinations. Local Government along with the rest of society is being asked to play its part in helping to reduce the deficit. Where we have reduced revenue grants, no local authority will face a reduction of more than 2 per cent. This compares to the cut in running costs for my Department and its quangos of 10 per cent in 2010/11.
We have ensured that councils have the flexibility to take decisions locally on how to deliver the savings needed. I am pleased that we have been able to keep Formula Grant at the level approved by Parliament of £29 billion. We have also announced further removal from ringfencing of central government revenue and capital grants. This gives councils extra flexibility to make decisions about where savings are found, although this is subject to the usual rules which ensure that capital funding is used on capital expenditure. A list of grants which have been removed from ringfencing is included in the information made available in the House.
There are good reasons for the changes we have made. For example, we believe that the Housing and Planning Delivery Grant has proved to be an ineffective and excessively complex incentive. The coalition agreement set out that we will provide incentives for local authorities to deliver sustainable development, including for new homes and businesses.
The Government believes that there is significant scope for local authorities to find efficiencies in the way in which they deliver services. We believe there are further opportunities for an increased role for joint working between local authorities and between different types of public authorities across local areas. Our focus on providing councils with the flexibility to manage budgets effectively will ensure that councils can deliver those services which local people wish to see.
I recognise that making savings in-year will be challenging for local authorities, as it will be for other parts of the public sector. The information which my Department is today sending to every local authority provides the detail councils need to make the necessary decisions as quickly as possible on how they will deliver the necessary changes. I have also made available in the Library of the House, a copy of the information which we have sent to each local authority which sets out the revised allocations.
I know that councils want this information as a matter of urgency and we have worked hard to deliver this. The Government therefore wishes to provide as much clarity and flexibility to local authorities and other public bodies as quickly as possible so that they can best handle the changes proposed without an impact on key frontline services.
I am satisfied that we have adopted a fair approach to making the necessary reductions in the different grants and funding streams. We are therefore simply asking councils to check quickly to make sure that there are no errors in the calculation of the reductions.
The detailed spending decisions we are outlining today show a clear determination to help tackle the immense public deficit the new Government has inherited.
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