William Eichler 21 December 2020

Councils’ core funding per resident set to drop below 2015-16 levels

Councils’ core funding per resident set to drop below 2015-16 levels image

Local authorities’ core funding per resident will be lower next year than 2015-16 despite real-term council tax increases of 16%, financial experts have calculated.

The provisional Local Government Finance Settlement, announced on Thursday, set out an increase in core funding for English councils of up to £2.2bn (4.5%) next year, and highlighted £3bn of additional support for COVID-19 costs.

However, according to the Institute of Fiscal Studies (IFS), of the £2.2bn increase in core funding projected for next year, less than £0.3bn is from the Government. The remaining £1.9bn is from increases in council tax bills of up to 5%.

Assuming that local authorities make full use of the allowable council tax increases, the average band D rate would increase to around £1,907 – up 29% in cash-terms and 16% in real-terms on its level in 2015-16. Core funding in 2021-22 would be 15% higher in cash-terms and 1% higher in real-terms than in 2015-16.

Once population growth is taken into account, this amounts to a 3% real-terms cut in core funding per capita over the last six years, according to the IFS briefing note, and it follows much bigger cuts over the period 2009-10 and 2015-16.

‘The vast majority – 87% – of the ‘up to’ £2.2bn increase in core funding for English councils confirmed by the Government is assumed to come from council tax payers. However, the actual increase is likely to be lower,’ said David Phillips, an associate director at the IFS and co-author of the briefing note.

‘Not only might some councils put their council tax bills up by less than the maximum 5% allowed, but underlying tax revenues are likely to perform less well than the Government has assumed.

‘Poorer areas can raise less from council tax increases than richer areas. The Government has addressed this issue next year by allocating most of the extra grant funding to poorer areas.

‘But this is a reminder that we need a rational and transparent system for allocating grant funding between councils – something that has been lacking for almost 15 years.’

Kate Ogden, a research economist at the IFS and co-author of the briefing note, commented: ‘It is worth noting that of the £3bn in COVID-19 funding announced for next year, around a quarter is actually to address impacts that will be spread over the next three years.

‘Having said this, the extra COVID-19 funding looks to be a reasonable amount if the impacts of the pandemic largely recede by summer as the vaccination programme rolls out and warm weather returns, and could be topped up if necessary.

‘But the outlook for 2022 and beyond is less rosy, with underlying demand and cost pressures meaning a funding gap is likely to open up, unless there are continued large increases in council tax and/or additional funding is allocated or devolved to councils.’

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