Local Government Finance

Communities and Local Government written statement – made at on 4 February 2013.

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Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I have today laid before the House the “Local Government Finance Report (England) 2013-14 (HC 948)”. This report establishes the starting point for each local authority in England in the new business rates retention scheme and sets out individual start-up funding assessments, baseline funding levels, business rates baselines, tariffs and tops-ups, and the basis of their distributions. A draft of this report was issued for consultation on 19 December 2012.

We received almost 200 written responses from local authorities, fire and rescue authorities, formal and informal groupings of authorities and others during the consultation. In addition Ministers met delegations from representative bodies including the Local Government Association and London councils as well as a large number of individual local authorities.

Having considered the views of all those who have commented on the provisional settlement, I have decided broadly to confirm the proposals for the settlement for 2013-14 as announced in December, after making some minor technical changes following representations made during consultation.

From 1 April councils will directly retain nearly £11 billion of business rates instead of returning it to the Government. The business rates retention incentive that this settlement introduces is a watershed in council financing, setting local authorities free to grow their income by building up new business rates revenue through supporting new firms and jobs. This could deliver around an extra £10 billion to the wider economy by 2020.

Councils account for around a quarter of all public expenditure. Last year budgeted to spend £114 billion—a bigger budget than the NHS or twice the entire defence budget or more than double the debt interest. It is only right that they play their part in driving down the deficit left us by the last Labour Government.

All councils have considerable total spending power. The overall reduction in spending power next year, taking into account the new public health grant, is just 1.3%.

The settlement is a fair one—fair to north and south, fair to rural and urban areas and fair to shires and metropolitan areas. For example Newcastle has a spending power per dwelling of £2,516, £700 more than Wokingham which has £1,815.

We have ensured again that no council will receive a revenue spending power reduction of more than 8.8% in 2013-14, thanks to the new efficiency support grant.

Despite the huge pressures on public finances, the Government have presented local government with a good deal in 2013-14. We continue to take steps to protect those councils most reliant on central

Government funding and to freeze council tax. The settlement implements the autumn statement commitment that local government would be exempt from the 1% top slice in 2013-14. This important protection gives local authorities time to drive through further service redesign that will deliver the efficient and sustainable services that citizens expect.

Local government has shown great skill in reducing its budgets. Committed local authorities have protected front-line services. Our 50 ways to save, setting out practical ways for councils to save money, big and small, should help.

A dramatic shift in spending power from Whitehall to the town hall means an estimated 70% of council income will now be raised locally compared to 56% under the centrally distributed “begging-bowl” formula grant system.

Following consultation we have concluded that more needs to be done to further support rural areas. This statement confirms increases made in the provisional settlement to the sparsity weighting and top-ups in the calculation of formula funding to reflect the costs of those services which can be more expensive in highly rural areas. On top of that, we are providing £8.5 million additional funding in 2013-14 as a separate new transitional grant to help authorities secure efficiencies in services for sparsely populated areas.

The Government have set aside £450 million over the next two years to help local government in England to freeze its council tax in 2013-14, which will be the third successive year in which a freeze scheme applies. Authorities and police and crime commissioners which do not increase their basic amount of council tax in 2013-14 will receive a grant equivalent to the revenue they would have generated by increasing their basic amount of council tax by 1%.

I encourage all authorities and police and crime commissioners to take up the grant offer and freeze their element of the council tax. In doing so, they will be providing real help to families and those on fixed incomes, such as pensioners, with their cost of living.

I have today laid before the House for approval “The Referendums Relating to Council Tax Increases (Principles) (England) Report 2013-14” which sets a 2% referendum principle for all principal local authorities, police and crime commissioners and fire and rescue authorities. This would mean that if an authority wished to raise their relevant basic amount of council tax in 2013-14 by more than 2%, their local electorate will have the opportunity to approve or veto the increase in a binding referendum.

The exceptions to this excessiveness principle are shire districts, police and crime commissioners and fire and rescue authorities whose 2012-13 council tax was in the lower quartile of their category of authority. In the case of these authorities, a referendum must only be held where the authority increases its relevant basic amount of council tax for 2013-14 by more than 2%, and there is a cash increase that is more than £5 in the relevant basic amount.

The Secretary of State is not proposing principles for local precepting authorities for 2013-14. However, he intends to revisit this issue next year, having considered the extent to which local precepting authorities have exercised restraint in relation to council tax this year— 30 January, Hansard, columns 41-43WS.

I have also today laid before the House for approval “The Referendums Relating to Council Tax Increases (Alternative Notional Amounts) Report (England) 2013-14” which a number of local authorities must use when determining whether the increase in their relevant basic amount of council tax in 2013-14 is excessive. These are required to reflect changes brought about by the localisation of council tax support.

I shall be making the local government finance report and the council tax reports available, with full supporting information, on our website at:


Copies of the reports have been placed in the Vote Office and the Library of the House.