Sleight of hand in government’s funding package for councils

With local and general elections looming, and Conservative MPs becoming anxious, the government has loosened the purse strings somewhat to increase funding for local authorities. However, some sleight of hand is involved – the additional funding includes an assumed maximum increase in council tax collection. Report by Nick Terdre, research and graphics Russell Hall.

Local government funding is due to increase by 7.5% to £64.7bn in 2024/25, if the settlement proposed by the government is accepted by MPs in early February. The initial £3.9bn rise, equivalent to a 6.5% increase, announced by chancellor Jeremy Hunt in the autumn statement in November, was last week topped up by a further £600m in response to a desperate call from mainly Tory MPs.

If the government thought they had answered local authorities’ calls for more generous funding in the autumn statement, they clearly got it wrong. But it now transpires that the offer is worth a lot less than it initially appeared.

As revealed by The Guardian, a significant part of the £3.9bn comprises the extra council tax that will be raised if councils increase the rate by the maximum permitted, which the government assumes they will. For an upper-tier council like East Sussex County Council that is 4.99% and for a lower-tier authority like Hastings Borough Council 2.99%.

This significant detail was not mentioned in any of the press releases or ministerial statements on the provisional local government finance settlement for 2024/25 published in December or the additional £600m announced last week. While the £64.7bn package was presented as representing an above-inflation increase of 7.5%, after excluding the council tax contribution it falls to around 4%, on a par with inflation.

Poorest households hurt most

Imposing the maximum council tax increase “would hurt the poorest households most because council tax forms a larger share of their monthly outgoings than that of a wealthier family,” David Phillips, an economist at the Institute for Fiscal Studies told The Guardian.

The revelation puts in an even poorer light the celebratory spin put on the tax cuts provided in chancellor Jeremy Hunt’s autumn statement in November and subsequent promises of more to come.

The flip side of the tax cuts is a 3.4% real-terms cut each year in unprotected spending to pay for them, analysis by the Institute for Fiscal Studies found. As was widely reported at the time, it is spending on public services, already substantially reduced since 2010, which will bear the brunt of these cuts.

Even though ignorant of the council tax sleight of hand, councils were quick to see through the spin. ESCC was party to a letter sent in early December by the County Councils Network to the Levelling Up, Housing and Communities minister, Michael Gove, and copied to the chancellor, complaining that they were worse off after the autumn statement than before it.

ESCC's core spending power has risen every year since 2015/16. The major component is provided by council taxpayers - in 2023/24, council tax accounted for about two thirds of this funding.

MPs' threat

And a large group of MPs, no doubt with electoral prospects on their mind, has since weighed in on the county councils’ side. In a well publicised letter sent on 12 January to the prime minister and Gove, 46 MPs representing county and unitary councils  threatened not to support the local government financial settlement when it is voted on in early February unless an emergency injection of funds was provided. Forty four of the signatories were Tories, including Hastings & Rye MP Sally-Ann Hart and Caroline Ansell (Eastbourne).

County councils are particularly under pressure due to their responsibilities for providing adult social care and children’s services, which according to the CCN account for 70% of the projected overspend in 2024/25.

On 24 January the Levelling Up department announced an additional £600m support package, of which £500m is earmarked for social care budgets. The other £100m will bolster all councils’ ‘core spending power,’ the resources available for funding service delivery.

The news was welcomed by representatives of the Local Government Association, the District Councils’ Network and Cllr Tim Oliver, chairman of the County Councils,  though not without some caveats. According to Oliver, “…reform of local government finance and the way in which we are expected to provide services is imperative. Councils require a long-term financial settlement to enable us to plan for, and meet, the demand from our growing elderly populations and the more complex needs of residents requiring social care.”

Exactly how the increases are to be distributed is still to be revealed. On a per capita basis, however, ESCC would receive an additional £4.8m for social care, on top of the £56.7m already promised, an 8.5% increase.

HBC's core spending power has been on the increase since 2019/20. In the four years to 2023/24, the council tax take increased in real terms by just over 30%.

Hastings is already in line to receive a provisional £14.7m in 2024/25, an increase of £652,833 or 4.7%, and  Rother District Council £12.9m, up £622,098, 5.1%. They will further benefit from the £100m pot in the form of a 1% increase to 4% in the Funding Guarantee that sets the minimum uplift a council must get. Overall, however, the additional money will fall far short of the estimated shortfalls of £4m faced by HBC and £3.8m for RDC.

Like other councils, HBC and RDC are scrambling to balance their books, and there is still a danger that some councils will fail to do so, adding to the half dozen or so which have already effectively gone bust.

Conditions

Gove made it clear there were conditions attached to the additional £600m funding. “…we are asking local authorities to produce productivity plans setting out how they will improve service performance and reduce wasteful expenditure to ensure every area is making best use of taxpayers’ money,” he said in a statement to the House of Commons, though there would appear to be little scope for “wasteful expenditure” after years’ of shrinking local authority budgets.

He also made a sally into the field of culture wars, adding: “I encourage local authorities to consider whether expenditure on discredited equality, diversity and inclusion programmes meets this objective.”

Hunt has promised further tax cuts in his March budget, though this week he said he would not have the same scope for them as in November. His plans have come in for criticism from the International Monetary Fund, which warned that key areas of public spending needed to be boosted instead.

 

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