Council chiefs have warned local government faces an additional £1bn hit to spending – effectively increasing central funding reductions from 10% to 15% in real terms in 2015/16.
Analysis by the Local Government Association (LGA) of key technical consultation papers issued last week by the DCLG suggests the lion's share – some £800m of the reduction – is a combination of new burdens money or cash which the spending round announcement made appear as new funds.
New burdens cash mainly comprises £330m on theback of ‘Dilnot' changes to social care funding. Other money held outside the Revenue Support Grant (RSG) includes allocations for the Independent Living Fund, money to support transformation and efficiency, reform of the fire service and the troubled families initiative.
The LGA claims an extra £180m is to be kept back from councils' share of business rates revenue to cover various risks – including the cost of any successful appeals by business owners against rateable values. The business rates safety net – a local government scheme guaranteeing no council would see its business rates income fall below 7.5% of baseline funding, is paid for from a levy imposed on prosperous councils.
Last year, after intense lobbying the DCLG agreed to drastically scale back its proposed £245m holdback in the 2013/14 provisional settlement to £25m in both this financial year and 2014/15.
However, the DCLG has indicated it plans to increase the amount of RSG kept back next year to £120m – a £95m hike.
The paper states resources would only be provided as needed and unused cash would be given back to authorities in line with their 2013/14 start-up funding assessment.
A Whitehall source told The MJ the safety net was always funded by and for the sector, and that figures have been revised based on information provided by councils.
A DCLG spokesman said: ‘It is disingenuous of the LGA to suggest there are further budget reductions since the total amounts allocated to local authorities have not changed since the spending round.'
The spokesman explained the £180m figure highlighted by Smith Square was driven by an increase in the money for the New Homes Bonus (NHB), an established policy which channelled all extra cash back to councils.
DCLG's four summer technical consultation papers on local government finance covered the NHB, pooling business rates, using capital asset sales to fund transformational services as well as the local government finance settlement for 2014/15 and 2015/16.
Between these two years, RSG is forecast to be reduced by nearly a quarter (24.2%) from £13.3bn in 2014/15 to £10.1bn in 2015/16.
Writing in The MJ this week, Simon Ridley, director of local government finance at the DCLG, states preparations for a final settlement in 2014/15 and a provisional settlement in 2015/16 are simpler than last year's exercise.
But Graeme McDonald, director of chief executives body SOLACE, said only an urgent whole systems review of local government finance could address increasingly
stringent cutbacks imposed on a structure ‘which has been put together piece-meal fashion over a number of years with reform building on reform'.
‘Many of the current mechanisms were designed in a dramatically different financial environment, and one to which we are unlikely to return. It is therefore essential that the means of re-distributing income across local public services be reviewed,' Mr McDonald said.
