Chancellor’s funding figures challenged as Revenue Support Grant tapers away

The chancellor’s claim during this year’s Spending Review that the loss of the Revenue Support Grant will be covered by a rise in council incomes has been challenged by the Local Government Association insisting councils still face a swingeing cut in grant funding.

Councils will be left almost on their own to fund services by the end of the decade, following the tapering out of revenue support grant by 2019/20.

The chancellor said in the Spending Review that councils would be compensated by changes allowing them complete retention of business rates and to raise council tax by up to 3.9% without a referendum.

However, the Local Government Association said that councils will face a 24% real-terms reduction in local government grant funding.

A source at the LGA said this calculation was made by taking £21.9bn as a baseline – made up of £20.4bn of currently retained rates plus a new £1.5bn fund for better care funding. By 2019/20, the LGA says that this figure would, in real terms, be down to £17.8bn.

Lord Porter, chairman of the Local Government Association, said: “Even if councils stopped filling in potholes, maintaining parks, closed all children’s centres, libraries, museums, leisure centres and turned off every street light they will not have saved enough money to plug the financial black hole they face by 2020.”

Osborne said: “If you take into account both the fall in grant and the rise in council incomes, it means that by the end of this Parliament local government will be spending the same in cash terms as it does today.”

The Treasury’s calculations are based on Office for Budget Responsibility predictions for rises in business rates income and an assumption that most councils will chose to impose a 1.9% increase in council tax in addition to a further 2% to fund social care. The latter power was also unveiled by Osborne this week.

Simon Parker, director of think tank New Local Government Network, told Room151: “The overall sense from people in the sector is it could have been a lot worse.

“This will, however, definitely be a real terms reduction after inflation, and cost pressures will be going up thanks to the living wage introduction. In addition, there are big questions about whether the OBR is right on its projections for business rate income.”

The Treasury also announced this week that it would retain the current system of top-ups and tariffs aimed at equalising business rates income between local authorities.

Parker said that this mechanism, along with business rate pooling within combined authority areas could shelter some authorities.

However, he said: “Some authorities are going to be in for a very hard time. Coastal unitaries have particular problems – it is difficult for them to work with their neighbours – they tend to be Labour councils surrounded by Conservative districts.”