English councils’ core funding per resident to be lower next year than in 2015-16

By agency reporter
December 28, 2020

The Local Government Finance Settlement announced just before Christmas set out an increase in core funding for English councils of up to £2.2 billion (4.5 per cent) next year, and highlighted £3 billion of additional support for COVID-19 costs.

However, of the £2.2 billion increase in core funding projected for next year, less than £0.3 billion is from the government. The other £1.9 billion is from increases in council tax bills of up to five per cent. It assumes councils will make full use of the allowable increases.

If they do, the average band D rate would increase to around £1,907, up 29 per cent in cash-terms and 16 per cent in real-terms on its level in 2015-16. Core funding in 2021-22 would be 15 per cent higher in cash-terms and one per cent higher in real-terms than in 2015-16. Accounting for population growth though, this amounts to a three per cent real-terms cut in core funding per capita over the last six years. And this follows much bigger cuts over the period 2009-10 and 2015-16.

These are among the findings of a new briefing note published by IFS researchers which looks at the provisional Local Government Finance Settlement. It also finds that the increase in core funding is likely be lower than the headline figure of £2.2 billion reported:

  • Councils may not increase bills by the full five per cent. In addition, government’s projections assume that the numbers of people claiming means-tested council tax discounts continue to fall as they did prior to the COVID-19 crisis. This almost certainly will not be the case – indeed increases in unemployment will likely mean an increase in claimants.
  • The government is providing £670 million as part of its £3 billion COVID-19 funding package for next year to address this issue. But it is important not to ‘double count’ this money as both part of ‘core’ and ‘COVID-19’ funding, which is something which the way the government has presented figures may lead people to do.

Other key findings include:

  • The extra COVID-19 funding being provided for next year does not look unreasonable if the impacts of the pandemic largely recede by summer. If impacts persist though, additional funding may be needed, and in this case, the government could call on its £21 billion COVID-19 reserve.
  • The picture for subsequent years is less rosy though. There is potential for longer-run and indirect effects of the crisis on the prevalence of chronic ill-health and safeguarding issues, which would come on top of pre-existing demand and cost pressures. This means it is highly likely that a funding gap will open up in future years unless there are continued large increases in council tax and/or additional funding is allocated or devolved to councils.

David Phillips, an Associate Director at the IFS and co-author of the Briefing Note said: “The vast majority – 87 per cent – of the ‘up to’ £2.2 billion increase in core funding for English councils confirmed by the government is assumed to come from council tax payers. However, the actual increase is likely to be lower. Not only might some councils put their council tax bills up by less than the maximum five per cent allowed, but underlying tax revenues are likely to perform less well than the government has assumed.

“Poorer areas can raise less from council tax increases than richer areas. The government has addressed this issue next year by allocating most of the extra grant funding to poorer areas. But this is a reminder that we need a rational and transparent system for allocating grant funding between councils – something that has been lacking for almost 15 years.”

Kate Ogden, a Research Economist at the IFS and another co-author of the Briefing Note, said: “It is worth noting that of the £3 billion in COVID-19 funding announced for next year, around a quarter is actually to address impacts that will be spread over the next three years.

“Having said this, the extra COVID-19 funding looks to be a reasonable amount if the impacts of the pandemic largely recede by summer as the vaccination programme rolls out and warm weather returns, and could be topped up if necessary. But the outlook for 2022 and beyond is less rosy, with underlying demand and cost pressures meaning a funding gap is likely to open up, unless there are continued large increases in council tax and/or additional funding is allocated or devolved to councils.”

* Read the Briefing Note Assessing England’s 2021-22 Local Government Finance Settlement here

* Institute for Fiscal Studies https://www.ifs.org.uk/


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