The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)
I am today publishing the Government’s formal proposals on distribution of formula grant to English local authorities for 2012-13. Total formula grant for 2012-13 will be £27.8 billion, of which redistributed business rates will be £23.1 billion, revenue support grant £477 million and police grant £4.2 billion.
The 2010 spending review set out how the Government are tackling the deficit we have inherited from the last Administration and put the public finances back in order. Every bit of the public sector needs to do its bit to help pay off the deficit, including local government, which accounts for a quarter of all public spending. The settlements for 2011-12 and 2012-13 set out on 13 December 2010 sought to achieve fair and sustainable settlements for local government between different parts of the country—from urban to rural, north to south, metropolitan to shire.
This settlement is supported by our extension of the successful council tax freeze scheme to a second year, building on the 2011-12 freeze offer taken up by all eligible councils. The offer being made to local authorities for 2012-13 is set out in the written statement of 14 November 2011, Official Report, column 27WS. Council tax more than doubled since 1997 and the freeze will offer real help to hard working families and once again save up to £72 compared to a 5% rise in council tax on top of this year’s saving of up to £72. All eligible authorities took up the offer of Government funding to freeze or reduce their council tax in 2011-12. By offering their local residents a council tax freeze again this year, it will offer real help now with the cost of living to local residents, including pensioners, private sector workers and public sector workers.
The estimated yield from business rates in England will be £23.119 billion in 2012-13. Since this is greater than the formula grant control total for 2012-13 agreed at the spending review, the second year’s funding for authorities which froze or reduced their council tax in 2011-12 has been included in formula grant for this year. This increases the total amount included as formula grant for 2012-13 to £27.791 billion.
The overall settlement is in keeping with that first proposed in February 2011. The sum of the provisional 2012-13 formula grant as at 7 February 2011 and the 2011-12 council tax freeze grant, therefore, form the allocations of formula grant for 2012-13. The council tax freeze grant allocations remain separately identifiable, and the subtotal given in the breakdown table for each authority is the same as the provisional 2012-13 formula grant allocations as at 7 February 2011 (my written statement of 7 February 2011, Official Report, column 1WS). This is in line with the Government’s policy on multi year settlements, which is that we will not change the provisional proposals first published in February 2011 except in entirely exceptional circumstances.
We have continued to focus resources in a way that gives more weight to those parts of the country with the highest levels of need. These are often the areas which are most reliant on central Government grant. As in 2011-12, in calculating the grant distributions we have acted to insulate them by distributing less money on a per capita basis, and giving more weight to the levels of need within different areas. We have also grouped councils into four bands and set different “floors” for their grant reductions. This is a fairer and more progressive system of calculating grant than before.
This year’s settlement means that the average spending power reduction for 2012-13 is expected to be limited to 3.3% (or £75 per household), less than last year’s comparable figure of 4.5%. We have also again made sure that no council will see their overall spending power fall by more than 8.8%. To fund this, I have transferred £20 million of my Department’s budget to local government for 2012-13. This additional funding will smooth the impact of this year’s settlement. Councils will have an average spending power of £2,186 per household at their disposal in 2012-13. Reflecting the fairness of the settlement, the average spending power per household in Hackney will be £3,050 compared with £1,537 in Windsor and Maidenhead.
Many councils have successfully shown that they can deliver significant efficiencies but there is still more to be done. Smarter procurement, reducing management and support services costs, greater transparency to cut waste, sharing services and tackling fraud can all deliver significant savings to help protect front-line services and taxpayers’ interests. And to support councils the Localism Act will trigger the biggest transfer of power in a generation to local communities.
Moreover, I would note that in the coming year, local government will have access to new financial measures including over £430 million of funding under new homes bonus, up to a £1 billion in community infrastructure levy, and access to the £2.4 billion regional growth fund and the £500 million growing places fund (through their local enterprise partnerships).
The Localism Act also includes powers to abolish Whitehall capping in England and instead allow local residents to veto excessive council tax rises. I can confirm that we are moving ahead with introducing arrangements for council tax referendums if an authority sets a council tax which exceeds principles endorsed by Parliament (i.e. is “excessive”). These provisions will be implemented for 2012-13 and I am also today giving an indication of the principles I am minded to propose for that year. I propose that local authorities will be required to seek the approval of their local electorate in a referendum if, compared with 2011-12, they set council tax increases that exceed:
3.5% for most principal authorities;
3.75% for the City of London;
4% for the Greater London Authority, police authorities, and single purpose fire and rescue authorities.
I am proposing that no equivalent principles will apply for town and parish councils for 2012-13, although they may in future years.
Of course, should all eligible local authorities take up the new council tax freeze offer for 2012-13 there will be no need for council tax referendums next year. After considering any representations from authorities, I will set out the final principles in a report to the House and seek approval for these in parallel with the final report on the 2012-13 local government finance settlement.
Any town hall that turns down the council tax freeze offer and tries to hike council tax bills unreasonably will now have to ask at the ballot box whether hard-working families and pensioners are willing to shoulder an increase in their cost of living.
Finally, this is a transitional settlement where we have set out details of the settlement for two years, striking a balance between the need to help councils plan for the future and the need to reform the system. Ministers believe the current system we have inherited from the last administration is broken. As the National Audit Office has observed, the formula grant system is
“highly complex and not transparent”
and
“the complexity of the four-block model... [serves to] obscure the link between needs, resources and funding”
(NAO, “Formula funding of local public services”, July 2011, HC 1090, p.26).
We have recently consulted on proposals that would lead to fundamental reform to the funding of local government, moving away from the existing arrangements where there is no connection between the health of the local economy and the funding of the local authority. Our proposals will provide councils with greater control over their funding, developing a direct link between the growth of businesses in their area, and the revenues available to them. These proposals, which we intend to introduce from 2013-14, will deliver direct financial incentives for authorities that promote economic growth and help many councils break free from dependency on grants from central Government. The Government will set out their response to the consultation proposals to the House shortly.
Today also marks the start of a period of statutory consultation with local government on formula grant distribution and I welcome their responses. Consultation closes on 16 January 2012.
I shall be making available full supporting information on the Department for Communities and Local Government website at:
http://www.local.communities.gov.uk/finance/1213/grant.htm.
This includes a “Plain English Guide to the Local Government Finance Settlement” for 2012-13 which I hope will be helpful in cutting through the jargon and the sheer complexity of the current system.
I have placed copies of the consultation paper and the Plain English Guide, as well as details of the location of other supporting material, in the Vote Office and the Library of the House.