Local Government Finance Settlement 2024-25

Monday 5th February 2024 Written Statements

[The Secretary of State for Levelling Up, Housing and Communities (Michael Gove)]

Today, I set out the final local government finance settlement for 2024-25. This makes available up to £64.7 billion for local authorities in England, an increase in core spending power of up to £4.5 billion, or 7.5% in cash terms, an above-inflation increase, on 2023-24.

The final settlement follows the consultation on the provisional settlement, which closed on 15 January. Having considered the responses, listened to councils, and received representations from colleagues, on 24 January I announced additional measures for local authorities worth £600 million. This included £500 million of new funding for councils with responsibility for adult and children’s social care, distributed through the social care grant. By making progress on the Government’s plan to halve inflation, grow the economy and reduce debt, we now can provide this extra funding to councils to continue to deliver vital services for their communities. Further details on the exceptional provision of this funding will be set out at the upcoming Budget.

Today I am laying before the House: the “Local Government Finance Report (England) 2024-25”; the “Referendums Relating to Council Tax Increases (Principles) (England) Report 2024-25”; and the “Referendums Relating to Council Tax Increases (Alternative Notional Amounts) (England) Report 2024-2025”. Together, these form the final local government finance settlement for 2024-25.

We received 267 responses to the provisional 2024-25 local government finance settlement consultation, and I am grateful to everyone who took the time to respond. Following the consultation and engagement process on the provisional settlement, we have made the following changes, which ensures a balanced settlement for the sector.

Social care

I am confirming an additional £500 million for social care services, as announced on 24 January. This will be allocated through the social care grant, which is ringfenced for adult and children’s social care. Together with the additional funding proposed at the provisional settlement, local authorities can therefore make use of a total of £8.7 billion in grant funding for social care through the 2024-25 settlement, including £1.5 billion in additional grant compared to 2023-24. This is made up of:

£5 billion through the social care grant, a £1.2 billion increase on 2023-24, including £500 million additional funding as announced on 24 January;

£1.1 billion through the market sustainability and improvement fund, a £123 million increase on 2023-24;

£500 million through the discharge fund, a £200 million increase to the local authority component on 2023-24; and

£2.1 billion through the improved better care fund.

While being mindful of pressures in adult social care, where possible councils should use the uplift to the social care grant to invest in areas that help place children’s social care services on a sustainable financial footing. This includes investment in expanding family help and targeted early intervention, expanding kinship care, and boosting the number of foster carers. The Government are committed to delivering substantive reform to children’s social care. That is why in 2023 we published our strategy for reform, “Stable Homes, Built on Love”, and over these next two years we will lay the foundations for wide-reaching reform across the whole system. The strategy is backed by £200 million of additional investment in the current spending review period, so that we can begin making progress immediately.

Council tax

The Government are committed to continuing to protect local taxpayers from excessive council tax increases. This settlement confirms our intention for referendum principles of up to 3% for core council tax and up to 2% for the adult social care precept in 2024-25. These provisions are not a cap, nor do they force councils to set taxes at the threshold level. When taking decisions on council tax levels, I expect all councillors, Mayors, police and crime commissioners and local councils to take into consideration the pressures many households are facing and the need to control unnecessary and wasteful expenditure. In Wales, the Welsh Labour Government have refused to introduce any referendum protection for council tax payers, leading to soaring council tax. Indeed, under the last Labour Government in England, council tax bills more than doubled.

The Government’s view continues to be that councils that have taken decisions to get themselves in the most severe financial failure should continue to take all reasonable local steps to support recovery including additional council tax increases. Therefore, for the 2024-25 settlement, in consideration of the significant financial failure of Thurrock Council, Slough Borough Council and Woking Borough Council, bespoke council tax referendum principles will apply. For Thurrock Council, Slough Borough Council and Woking Borough Council, a council tax referendum principle of 10% will apply—for Thurrock and Slough, this comprises 2% for expenditure on adult social care, and 8% for other expenditure.

Birmingham City Council has requested flexibility to increase council tax bills by an additional 5%. The Government have expressed ongoing concern about the significant financial mismanagement at the council and have launched a five-year intervention to tackle its serious financial and governance problems. It is disappointing that Birmingham City taxpayers are having to foot the bill for the council’s poor governance and decision making. While the Government will not oppose this request given the seriousness of the circumstances, any decision to increase council tax is solely one for Birmingham City Council, which should have taken into account the pressures that people in Birmingham are currently facing on living costs. The Government are of course conscious of the effect on local taxpayers, particularly those on low incomes, of having to foot part of the bill for these councils’ very significant failings. We have been clear to each of the councils that in implementing any additional increases, they should take steps to mitigate the impact on those least able to pay.

Funding guarantee

I am confirming that, having listened to the requests of local government during the consultation period, and in acknowledgment of the pressures facing all tiers of local government, we are increasing the funding guarantee from 3% to 4%. This means every council in England will receive at least 4% more core spending power, in cash terms, than they did last year, before they have taken any local decisions on council tax.

Rural services delivery grant

I am also confirming that, in response to the consultation feedback and in recognition of the specific challenges and difficulties local councils can face serving rural, sparse populations, we are increasing the rural services delivery grant by £15 million in 2024-25. This is an increase of over 15%, making available a total of £110 million next year. This is the largest cash increase in the rural services delivery grant since 2018-19 and the second successive year of above inflation increases.

Services grant and islands

At the provisional settlement, we announced that the services grant would reduce to £77 million in 2024-25. The Government have noted the concerns raised in the consultation about the proposed reduction, and the calls for clarity on how the reduction has been reallocated within the settlement.

As announced on 24 January, the Government have responded with a funding package worth £600 million for local government, including £500 million of additional funding for social care. The Government’s full response to the consultation has been published today and provides more detail on how the reduction in the services grant has been used to uplift other settlement grants. These decisions have been taken to ensure a balanced settlement for all authorities that reflects our assessment of need.

The Government also intend to bring the final total of the services grant to £87 million—£10 million more than the value consulted on at the provisional settlement. This uplift includes an additional £3 million for the Isle of Wight and £0.15 million for the Isles of Scilly in recognition of the circumstances facing island authorities.

Measures outside of the local government finance settlement

Having listened to authorities which continue to face sustained increases to their internal drainage board levies, we are again providing exceptional funding of £3 million in addition to the settlement to support those experiencing the biggest pressures. We will confirm the distribution of this funding in the coming months when data on projected levy spend becomes available. We will work with the Department for Environment, Food and Rural Affairs to explore options to implement a long-term solution.

Every authority in England also stands to benefit from increased growth in business rates income, which has generated a surplus in the business rates levy account in 2023-24. I can confirm that £100 million will be returned to the sector on a one-off basis, to be distributed based on each local authority’s 2013-14 settlement funding assessment. I am also announcing today that we will compensate local authorities for the green plant and machinery business rates exemption via grant on a continuing basis until the business rates retention system is reset.

On 19 December 2023, my Department launched a consultation seeking views on options relating to capital flexibilities and borrowing. The aim of this exercise was to explore options for allowing councils greater financial flexibilities to make savings and better manage their own budgets overall. We want to ensure every penny of taxpayer money is well spent and we are considering carefully what proportionate safeguards are needed alongside these measures. This consultation closed on 31 January 2024. I am grateful to all those who took the time to provide views. The Government intend to publish a full response to this consultation in the spring.

Efficiency and reform

I would like to emphasise that this additional funding needs to be used by local authorities to deliver the frontline services on which our communities rely. It should not be put aside for later use, nor spent wastefully. We will therefore continue to monitor the level of local authority reserves. The Government note that while local authority reserves are falling, they remain significantly higher than prior to the pandemic. We continue to encourage local authorities to consider, where possible, the use of their reserves to maintain services in the face of these pressures.

As part of our efforts to return the sector to sustainability in the future, we are also asking local authorities to develop and share productivity plans. These plans will set out how local authorities will improve service performance and reduce wasteful expenditure, for example on consultants or discredited equality, diversity and inclusion programmes. Government will monitor these plans, and funding settlements in future will be informed by performance against these plans.

My Department will work with the local government sector on the approach to producing these plans. The plans should be short and draw on work councils have already done, identifying ways to unlock productivity improvements and setting out the key implementation milestones. Plans should be published by July 2024 before the House rises for the summer recess. They must be agreed by council leaders and members and published on local authority websites, together with updates on progress.

We expect them to cover four main areas:

1) transformation of services to make better use of resources;

2) opportunities to take advantage of advances in technology and make better use of data to inform decision making and service design;

3) ways to reduce wasteful spend within systems, including specific consideration of expenditure on consultants and discredited staff equality, diversity and inclusion programmes—this does not include programmes designed to promote integration and civic pride, and counter extremism; and

4) barriers preventing activity that Government can help to reduce or remove.

Alongside this, we will establish a new productivity review panel, made up of sector experts including the Office for Local Government and the Local Government Association.

The Government are grateful to all those who provided views on the proposal to use levers in local government finance settlements beyond 2024-25 to disincentivise the “four day working week” or equivalent arrangements of part-time work for full-time pay. The Government continue to believe that this reduces the potential capacity to deliver services by up to 20%, and as a result does not deliver value. We will consider responses to this question carefully as part of continuing policy development to deter local government from operating these practices, with any changes at future settlements subject to further consultation.

We are committed to improving the local government finance system beyond this settlement in the next Parliament and the Minister for Local Government—the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for North Dorset (Simon Hoare)—will be engaging with the sector over the coming months.

Conclusion

This settlement, and the changes we have made to address concerns raised through the consultation, will provide local authorities with the tools to support their local communities, continue to reform their services for the long-term, and help communities prepare for the future.

This written ministerial statement covers England only. The Barnett formula will apply to this funding in the usual way.

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