The Local Government Finance Settlement 2021- 22 - UK ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
BRIEFING PAPER
Number 09129, 5 February 2021
The Local Government
Finance Settlement 2021- By Mark Sandford
Philip Brien
22
Contents:
1. The 2021-22 settlement:
outline
2. The settlement
3. Additional Government
support
4. The 2021-22 settlement:
statistical summary
www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | papers@parliament.uk | @commonslibrary
2 The Local Government Finance Settlement 2021-22
Contents
Summary 3
1. The 2021-22 settlement: outline 4
2. The settlement 6
2.1 Grants 6
2.2 Business rates revenue 7
2.3 Visible Lines of Funding 7
2.4 Referendum thresholds 8
2.5 Adult Social Care precept 8
3. Additional Government support 10
4. The 2021-22 settlement: statistical summary 12
4.1 Settlement funding 12
4.2 Core spending power 14
4.3 Funding for Covid-19 costs 15
Cover page image copyright: Public services staff at work by Spencer S Eccles Health
Sciences Library. Licensed under CC BY 2.0 / image cropped.
3 Commons Library Briefing, 5 February 2021
Summary
This paper provides background to a debate in the House of Commons on the final Local
Government Finance Settlement 2021-22, scheduled for 10 February 2021. The House of
Commons must approve the settlement before it can take effect.
The provisional Settlement was published on 17 December 2020, and debated on the
same day in the House of Commons. 1 The final settlement documentation was published
on 4 February 2021.
Local government is devolved to Scotland, Wales and Northern Ireland. The Local
Government Finance Settlement, and this paper, apply to England only.
This paper sets out a statistical analysis of the proposed 2021-22 settlement; an
explanation of the Government’s decision-making process regarding the structure of the
settlement; and details of the proposed referendum thresholds for 2021-22.
A dashboard showing historical figures for local government finance settlements is
available on the House of Commons Library’s website. A dashboard containing details of
additional support for English local authorities, to respond to the Covid-19 pandemic, is
also being published.
1
See HCDeb 17 Dec 2020 c426-4454 The Local Government Finance Settlement 2021-22
1. The 2021-22 settlement: outline
The provisional 2021-22 Local Government Finance Settlement was
published on 17 December 2020, and debated on the same day in the
House of Commons. 2 Documentation for the final settlement was
published on 4 February 2021.
The final settlement is scheduled to be debated in the House on 10
February 2021. The House must approve the final settlement before it
can take effect. The settlement applies in England only, as local
government is devolved in Scotland, Wales and Northern Ireland.
Documentation related to the settlement is available on the MHCLG’s
section of gov.uk. This includes:
• The spreadsheet Key information for local authorities, which
includes allocations of funding for each local authority in England;
• Further reports setting out allocations of New Homes Bonus,
social care grant, and the new lower tier services grant to each
local authority in England;
• A paper explaining the operation of business rate retention in
areas that are permitted to retain 100% of business rate receipts
locally;
• Statutory reports setting out the ‘referendum principles’ relating
to council tax: that is, the thresholds above which local authorities
wishing to raise council tax must obtain local approval in a
referendum.
The 2021-22 local government finance settlement is a one-year
settlement, based on decisions in the November 2020 Spending Review.
The Government had planned to implement the Fair Funding Review,
and reset the business rate retention scheme, as of April 2021 (see the
Library briefing paper Reviewing and reforming local government
finance). This was postponed as a result of the Covid-19 pandemic. It is
not yet clear whether it will now take place in April 2022 or at a later
date. In the debate on the provisional settlement on 17 December
2020, the Secretary of State said “…there might be an opportunity to
do it next year, and my Department will work with the Treasury to
review that”. 3
Local government representatives cautiously welcomed the provisional
settlement, whilst expressing the view that a longer-term settlement for
local authorities would be beneficial. For instance, London Councils said:
…this year’s settlement is heavily geared towards short term
measures without much consideration for longer term
sustainability. The social care funding once again plugs a short-
term gap, and the long overdue social care long term plan,
expected next year, must provide a long-term solution for the
sector. The outcome of the Fair Funding Review, the future of
business rates as a tax (through outcome of the “fundamental
2
See HCDeb 17 Dec 2020 c426-445
3
HCDeb 17 Dec 2020 c4345 Commons Library Briefing, 5 February 2021
review” due in the Spring) and of business rates retention, are
other key policy areas the government will need to return to in
the next year or so… 4
The remainder of this paper sets out a statistical analysis of the
proposed 2021-22 settlement; an explanation of the Government’s
decision-making process regarding the structure of the settlement; and
details of the proposed referendum thresholds for 2021-22.
4
London Councils, Provisional Local Government Finance Settlement 2021-22,
December 20206 The Local Government Finance Settlement 2021-22
2. The settlement
This section sets out the main features of the provisional local
government finance settlement for 2021-22.
2.1 Grants
The provisional settlement documentation states that, from 2020-21 to
2021-22, Revenue Support Grant will be increased in line with the
Consumer Prices Index (CPI). The England total of Revenue Support
Grant for 2021-22 is £1.62 billion.
The Social Care Grant will be increased from £1.41 billion to £1.71
billion. Of the extra £300 million, £240 million will be allocated between
authorities so as to offset the effects of the adult social care precept on
council tax. Local authorities vary in the degree to which they can raise
additional council tax revenue via the social care precept. The remaining
£60 million will be allocated via the adult social care Relative Needs
Formula (this formula is used to distribute the existing grant).
The provisional settlement says that “this grant will not be ringfenced,
and conditions on reporting requirements will not be attached”. 5
The Improved Better Care Fund will be maintained at £2.1 billion. No
change will be made to how it is distributed. Allocations of the grant
can be found in the spreadsheet Core spending power: supporting
information.
The New Homes Bonus will be funded by £622m of funding top-sliced
from Revenue Support Grant for 2021-22. The NHB provides funding to
local authorities per new house built in their area above a baseline of a
0.4% increase in housing stock.
In previous years, NHB funding per house built has been provided for
periods of between four and six years. This practice has been known as
‘legacy payments’. Payments made in 2021-22 will not attract legacy
payments in future years. The provisional settlement documentation
says:
The Government has committed to reforming the NHB, and this
year will be the final year under the current approach. We will
publish shortly a consultation document on the future of the New
Homes Bonus, including options for reform. 6
A new Lower Tier Services Grant will be available in 2021-22. A total of
£111 million will be distributed to district and unitary authorities. Of
this, £86 million will top up the lower-tier allocations within the
Settlement Funding Assessment, and £25 million will be used to ensure
that no authority sees a fall in core spending power in 2021-22. This
grant will not be repeated in future years.
The Rural Services Delivery Grant will remain in place, increased by £4
million to £85 million. It will be distributed on the same basis as in
5
MHCLG, Provisional local government finance settlement 2021-22: consultation
paper, 2020, p13
6
Ibid., p157 Commons Library Briefing, 5 February 2021
previous years. Allocations of the grant can be found in the spreadsheet
Core spending power: supporting information.
Allocations of the ring-fenced public health grant to local authorities
were not published alongside the provisional settlement, and have not
appeared at the time of writing.
2.2 Business rates revenue
The Government will freeze the business rates multiplier from 2020-21
to 2021-22, in response to the pressure caused by the Covid-19
pandemic. Normal practice is for the multiplier to rise in line with the
CPI. The English multiplier will be 51.2p in 2021-22, and the small
business multiplier will be 49.9p. 7
Freezing the multiplier will lead to local authorities collecting less in
business rates revenue than they otherwise would. The Government will
pay additional grant to local authorities to take account of the lost
revenue, based on the amount local authorities would have collected if
the multiplier had risen in line with the CPI. 8
The Local Government Association’s briefing states that this specific
additional grant amounts to £650 million across England for 2021-22.
This also includes compensatory grants originating in previous years
when the Government has chosen to freeze the multiplier. 9
2.3 Visible Lines of Funding
In recent years the Government has published a series of ‘visible lines of
funding’ alongside the local government finance settlement. These are
not separate sources of funding. They represent notional allocations of
funding related to grants that, in the past, have been provided by the
Government for specific purposes. All of these grants were rolled into
Revenue Support Grant before 2016. Examples include homelessness
prevention grant, Early Intervention funding, and the learning disability
and health reform grant. The 2021-22 documentation describes them
as follows:
Visible Lines show a notional allocation for grants that were rolled
into the settlement at previous Spending Reviews, most of them
before 2016. These allocations are entirely notional as the core
settlement is not ringfenced and they do not impact on the
settlement distribution or represent an expectation from central
government of local expenditure levels. 10
The documentation states that the Government will not publish visible
lines of funding alongside the 2021-22 settlement, and will not do so
7
MHCLG, Business Rates Information Letter 9/2020, 15 Dec 2020
8
MHCLG, Provisional local government finance settlement 2021-22: consultation
paper, 2020, p9
9
Local Government Association, Provisional Local Government Finance Settlement
2021-22 On the Day Briefing, 17 December 2020, p9. See also the spreadsheet Core
spending power: supporting information.
10
MHCLG, Provisional local government finance settlement 2021-22: consultation
paper, 2020, p188 The Local Government Finance Settlement 2021-22
again for pre-2016 grants. It will consider publishing visible lines of
funding again following future spending reviews.
2.4 Referendum thresholds
The provisional settlement includes planned referendum thresholds for
the 2021-22 financial year. The following thresholds were proposed:
• Local authorities with responsibility for social care (county and
unitary authorities) must hold a referendum if council tax is to be
increased by 5% or more. Council tax for general spending
requires a referendum if it rises by 2% or more, alongside a
maximum 3% ‘social care precept’. Some or all of the adult
social care precept for 2021-22 can be deferred to 2022-23, in
which case it may be used on top of any thresholds set for 2022-
23;
• For district councils, a threshold was set of 2% or more or more
than £5.00 on a Band D property, whichever is the greater;
• For Police and Crime Commissioners (PCCs), fire and rescue
authorities, and the Greater London Authority: if council tax is to
be increased by more than £15 on a Band D property;
• No principles were set for Mayoral Combined Authorities or for
parish and town councils;
The principles for the Greater London Authority were set following
negotiation between the GLA and MHCLG. This took place in the
context of large-scale Government financial assistance for the GLA
group, in the light of the financial impacts of the Covid-19 pandemic.
A report in the Local Government Chronicle on 11 January 2021 stated
that the Mayor of London planned to seek a 9.5% rise in council tax for
2021-22. 11 In the event, the principle was set at £15 on a Band D
property. This was confirmed by a letter from the Secretary of State to
the Mayor of London on 4 February 2021.
2.5 Adult Social Care precept
The adult social care precept, noted above, will provide much of the
headline increase of 4.5% in core spending power. The Local
Government Association briefing says:
….more than 85 per cent of the potential core funding increase
next year is dependent on councils increasing council tax by up to
5 per cent next year. This leaves councils facing the tough choice
about whether to increase bills to bring in desperately needed
funding to protect services at a time when we are acutely aware
of the significant burden that could place on some households. 12
The Institute for Fiscal Studies’ December 2020 briefing states that 87%
of the headline increase derives from council tax. This also assumes that
all authorities choose to increase council tax by the maximum permitted
without a referendum, which some authorities may decide not to do. In
11
Sarah Calkin, “Mayor proposes 10% council tax hike”, Local Government Chronicle,
11 January 2021
12
Local Government Association, Provisional Local Government Finance Settlement
2021-22 On the Day Briefing, 17 December 2020, p19 Commons Library Briefing, 5 February 2021
addition, the IFS states that the figure assumes that current rates of new
housing are maintained, which may not occur:
Based on new housebuilding alone, we would expect tax base
growth of more like 1%, which would mean £200 million less
revenue than the government has assumed. If increases in receipt
of means-tested discounts were to offset entirely underlying
increases in the number of houses, there would be a revenue
shortfall of over £500 million relative to what the government has
assumed. And of course, growth in means-tested support could
exceed this. 13
In 2021-22, central grant funding for local government is planned to
rise by £292 million compared to 2020-21. 14
13
Kate Ogden and David Phillips, Assessing England’s 2021-22 Local Government
Finance Settlement, Institute for Fiscal Studies, 2020, p5
14
Kate Ogden and David Phillips, Assessing England’s 2021-22 Local Government
Finance Settlement, Institute for Fiscal Studies, 2020, p4-510 The Local Government Finance Settlement 2021-22
3. Additional Government
support
The Government has provided substantial additional funding to local
authorities during the 2020-21 financial year, to mitigate the impacts of
the Covid-19 pandemic. In the debate on the provisional settlement on
17 December 2020, Robert Jenrick, the Secretary of State for
communities and local government, said:
Early in the pandemic, the Local Government Association came
before the hon. Gentleman’s Committee and estimated that costs
incurred by local councils would be around £10 billion. We are
going to end this financial year having provided local councils
with, I suspect, about £10 billion, and we are providing further
billions of pounds into next year. 15
A number of additional sources of funding were announced on 5
January 2021. These include:
• £1.55 billion in un-ringfenced funding for local authorities. This is
to be distributed according to the ‘Covid Relative Needs Formula’.
In effect, it is a fifth tranche of the funding support summarised in
the 22 October announcement. The Government guidance does
not prescribe what use should be made of the funding, but
recommends priority be given to:
….adult social care, children’s services, public health services,
household waste services, shielding the clinically extremely
vulnerable, homelessness and rough sleeping, domestic abuse,
managing excess deaths, support for re-opening the country and,
in addition, the additional costs associated with the local elections
in May 2021. 16
• £670 million to be distributed to local authorities to support local
council tax support schemes. These are expected to face increased
pressure due to the economic effects of the pandemic.
• A Government commitment to reimburse local authorities for
75% of irrecoverable council tax and business rates shortfalls in
the 2020-21 financial year. Authorities must make claims for
reimbursement based on their forecast income;
• Compensation for lost income from sales, fees and charges,
originally announced on 24 August 2020, is to be extended to
cover April, May and June 2021.
Details of how this funding will be allocated between local authorities,
and other information, is available on the MHCLG section of gov.uk. 17
The IFS estimate that, in December, the Government had provided
“more than enough funding” for local authorities to address Covid-
related stresses. 18 This was before the latest support package,
15
HCDeb 17 Dec 2020 c431
16
MHCLG, COVID-19 funding for local government in 2021-22: consultative policy
paper, 11 Jan 2021, paragraph 20
17
Ibid.
18
Kate Ogden and David Phillips, Assessing England’s 2021-22 Local Government
Finance Settlement, Institute for Fiscal Studies, 2020, p911 Commons Library Briefing, 5 February 2021
announced in January 2021, which provided an extra £1.55 billion in
un-ringfenced grants for local authorities. They also warn that Covid-19
may lead to greater demand for council services, alongside other drivers
such as “the ageing population; rising numbers of younger adults with
learning disabilities; increases in the number of children under the
supervision or care of councils; and increases in labour costs, in part
because of increases in the National Living Wage”. 19
19
Kate Ogden and David Phillips, Assessing England’s 2021-22 Local Government
Finance Settlement, Institute for Fiscal Studies, 2020, p1112 The Local Government Finance Settlement 2021-22
4. The 2021-22 settlement:
statistical summary
This section provides a high-level statistical analysis of the provisional
2021-22 local government finance settlement.
Funding to local authorities is reported using two different sets of
figures:
• Settlement funding broadly represents the amount of money
allocated to local authorities from central government. It includes
the Revenue Support Grant, redistributed business rates, and
some specific grants, but does not include grants which are
passed straight through to recipients such as the Dedicated
Schools Grant.
• Core spending power is a concept created by central
government, and is intended to represent the total amount of
money over which local authorities can take spending decisions. It
therefore includes settlement funding, but it also includes other
grants such as the Improved Better Care Fund, the New Homes
Bonus and the Social Care Grant (although, as with settlement
funding, it does not include grants passed through to recipients).
Significantly, it also takes into account an estimate of the amount
of money that local authorities are expected to raise through
Council Tax, and assumes that they raise their Council Tax rates by
the maximum permitted without triggering a local referendum in
order to do this.
4.1 Settlement funding
The amount of settlement funding allocated to each local authority for
2021-22 is very similar in cash terms to the amount allocated for 2020-
21. 42% of all local authorities will see no change at all (that is, their
allocation is exactly the same as the previous year); no local authorities
were allocated less than in 2020-21, 20 while some had very small
increases. The largest cash-terms increase by percentage was 0.3%, for
the Isles of Scilly.
The provisional settlement documentation states that the Government
has provided “a uniform percentage increase in 2020-21 Revenue
Support Grant (RSG) allocations, based on the change in the Consumer
Price Index (CPI)”. 21
This very consistent distribution across local authorities means that their
longer-term funding position remains much the same as last year. As of
the 2021-22 financial year, settlement funding as a whole in England
20
There was one exception to this – Isle of Wight saw its funding decrease by 7%
compared to 2020-21. However, this is because responsibility for fire services will be
transferred to the new Hampshire and Isle of Wight Fire and Rescue authority from
2021; the change in funding reflects the transfer of responsibility.
21
MHCLG, Provisional local government finance settlement 2021-22: consultation
paper, 2020, p613 Commons Library Briefing, 5 February 2021
will have decreased by 30% in cash terms since 2015-16, and all but
two local authorities will have seen at least some decrease. 22
We cannot provide real-terms figures covering 2020-21 and 2021-22 –
this is because the large changes in how public services were delivered
during the Covid-19 pandemic (and the expected change back again as
life returns to normal) have had a serious effect on the government
consumption figures. This means that calculating real-terms figures
based on this data is not meaningful. 23
The grey lines in the chart below correspond to every local authority in
England which received funding every year from 2015-16 to 2021-22.
They show each authority’s funding as a proportion of its funding level
in 2015-16.
Note: The grey lines represent every local authority in England where we have a figure for
settlement funding in each year from 2015-16 to 2021-22. The median line indicates the point
where half of authorities have higher indexed settlement funding and half have lower – it does not
follow the same authority across all years.
Source: MHCLG, Local government finance settlement: England, 2021 to 2022, 4 February 2021
22
The two exceptions are Isles of Scilly, which has its level of funding set separately to
all other local authorities due to its unusual geographical situation, and the Greater
London Authority, which received a large increase in funding in 2017-18 reflecting
changes in the collection and retention of business rates. See paragraph 1.6 of the
GLA’s 2017-18 budget.
23
The difference between nominal and real government consumption is measured by
looking at the difference between the amount spent by government and the
amount of services actually delivered. The Covid-19 pandemic resulted in some
services being heavily affected (with the closure of schools, for example), and this
has had an effect on the GDP deflator which does not reflect actual increases in the
price of delivering these services.14 The Local Government Finance Settlement 2021-22 This shows that although there is considerable variation between local authorities as to how far their funding has been reduced, the overall trend is consistent – funding generally decreased in cash terms in every year between 2015-16 and 2019-20, although the decreases tended to get smaller each year, and has been essentially flat since then. 4.2 Core spending power In cash terms, core spending power in England as a whole will be 4.6% higher in 2021-22 than the previous year. The majority of this increase comes from a 6.7% increase in the expected council tax take (see section 2.5 above), which rises to £31.2 billion compared to £29.2 billion in 2020-21. No local authorities will see a cash-terms decrease in core spending power in 2021-22, but the variation between authorities is far larger than for settlement funding. The largest increase is 9.0% (for Braintree), while the median is 3.2%. As with settlement funding, we cannot calculate meaningful real-terms figures for the period covering 2020-21 and 2021-22. However, as the chart below shows, the cash-terms increase for all local authorities continues the trend from last year’s settlement. A small majority of authorities (63%) will now have spending power that is higher in cash terms than it was in 2015-16. Note: The grey lines represent every local authority in England where we have a figure for core spending power in each year from 2015-16 to 2021-22. The median line indicates the point where half of authorities have higher indexed spending power and half have lower – it does not follow the same authority across all years. Source: MHCLG, Local government finance settlement: England, 2021 to 2022, 4 February 2021
15 Commons Library Briefing, 5 February 2021
Core spending power for most classes of authority has followed a
similar path, but as the chart below shows, shire districts have seen
greater cuts and a slower recovery than other classes.
Source: MHCLG, Local government finance settlement: England, 2021 to 2022, 4 February 2021
Although shire districts have seen a cash-terms increase in spending
power in this settlement, they remain the only class of authority not to
have seen its spending power recover past 2015-16 levels.
4.3 Funding for Covid-19 costs
This settlement does not include specific extra funding to help local
authorities to cope with the impact of Covid-19 – this has instead been
provided through other sources. For example, £4.6 billion of emergency
un-ring-fenced funding for local authorities has been provided in four
tranches over the course of 2020, and further allocations have been
made for 2021. 24
MHCLG has been monitoring the financial impact of the pandemic on
local authorities. As of the most recent round of reporting in January
2021, local authorities in England have estimated that the total impact
of Covid-19 on their budgets in 2020-21 will be around £12.6 billion
(£6.9 billion of additional spending, and £5.7 billion of lost income). 25
By far the largest area of additional spending (making up 45% of the
total) has been additional spending on adult social care, particularly
from higher demand and supporting the market. The largest losses of
income have come from lower sales, fees and charges (37% of all
losses), followed by business rates (27%). These losses will be mitigated
24
See MHCLG, Coronavirus (COVID-19): emergency funding for local government in
2020 to 2021 and additional support in 2021 to 2022, 11 January 2021
25
MHCLG, Local authority COVID-19 financial impact monitoring information, 25
January 2021, round 8, tables 1 and 216 The Local Government Finance Settlement 2021-22 to some extent by the sources of support noted in section 3 above. The exact amount of support provided under those programmes will not be known until data becomes available later in 2021.
About the Library
The House of Commons Library research service provides MPs and their staff
with the impartial briefing and evidence base they need to do their work in
scrutinising Government, proposing legislation, and supporting constituents.
As well as providing MPs with a confidential service we publish open briefing
papers, which are available on the Parliament website.
Every effort is made to ensure that the information contained in these publicly
available research briefings is correct at the time of publication. Readers should
be aware however that briefings are not necessarily updated or otherwise
amended to reflect subsequent changes.
If you have any comments on our briefings please email papers@parliament.uk.
Authors are available to discuss the content of this briefing only with Members
and their staff.
If you have any general questions about the work of the House of Commons
you can email hcenquiries@parliament.uk.
Disclaimer
This information is provided to Members of Parliament in support of their
parliamentary duties. It is a general briefing only and should not be relied on as
a substitute for specific advice. The House of Commons or the author(s) shall
not be liable for any errors or omissions, or for any loss or damage of any kind
arising from its use, and may remove, vary or amend any information at any
time without prior notice.
The House of Commons accepts no responsibility for any references or links to,
BRIEFING PAPER or the content of, information maintained by third parties. This information is
Number 09129
provided subject to the conditions of the Open Parliament Licence.
5 February 2021You can also read
