English councils have received a new three-year financial settlement. But is it fair? Who are the winners and losers? Will your council tax bill go up, and will it stop councils from declaring effective bankruptcy?
What is the English local government finance settlement, and why is it important?
The government announced a three-year funding settlement for English councils on Wednesday. This sets out each local authority’s core finance allocation, enabling them to set local council tax bills for next April and finalise an overall budget.
For the first time, government funding for councils was distributed using a new Fair Funding formula that gives higher weighting (and thus a greater relative share of overall resources) to local authorities with high “deprivation” scores (relative deprivation is measured by factors such as income, employment, health, housing costs and crime).
Are there winners and losers from the new funding formula?
Middlesbrough, Manchester and Birmingham were among the most deprived local authority areas according to the latest indices of deprivation – and they will see some of the biggest increases in spending power from April.
Outer London boroughs such as Haringey and Newham also benefit. The “losers” include wealthier central London boroughs including Kensington and Chelsea, and affluent home counties commuter belt councils such as Surrey.
Ministers say the new formula is fairer because it directs a bigger share of overall funding to areas that need the most support, reversing years of austerity. Some northern councils say it does not go far enough to compensate deprived areas for years of cuts, while rural councils with relatively low levels of deprivation say they have been unfairly discriminated against.
Will my council tax bill go up or down as a result of the latest financial settlement?
Most councils, whether winners or losers in this settlement, are likely to increase council tax bills in April to the maximum allowable (4.99% for an upper-tier authority with social care responsibilities).
Some areas (including Reform-led councils that have declared lower council tax bills a political priority) may try to limit the increase.
But the era around a decade ago where Conservative-run local authorities routinely froze council tax bills as a matter of principle are over. While some councils are seeking to increase council tax above 4.99%, such as Windsor and Maidenhead, ministers say this would merely bring local bills into line with the England average after years of freezes.
Are ministers right to say the settlement will ‘turn the page on a decade of cuts’?
While ministers have expressed hope that the settlement will enable councils to “bring back libraries, youth services [and] clean streets”, it is likely most authorities – even some of the winners – will continue struggling to keep on top of soaring demand for services such as social care and homelessness support.
That means more cuts. The council cake may be more fairly divided, but it is not bigger.
“We need greater focus on the most pressing issue facing local government today: getting more money into the system,” said Jonathan Carr-West, chief executive of the Local Government Information Unit.
How will it affect councils’ notoriously fragile and overstretched finances?
Many councils are struggling to meet their legal duty to balance the books in the face of rising costs and demand, and some have signalled that they will seek exceptional financial support (EFS) from the government to stave off effective bankruptcy.
Last year, 30 councils received this support – in effect permission for town halls to take out capital loans to pay for day-to-day services. There is speculation up to 100 councils may apply for EFS in the next few months.
The new financial settlement may help some councils pull back from the brink, but it is likely to push others closer to crisis.
