Commercial income could be excluded from council funding calculations

The government is minded to exclude councils’ commercial income from calculations on how much funding they receive from central government, according to a senior official working on the Fair Funding Review.

Stuart Hoggan, deputy director for local government finance at the Ministry of Housing Communities and Local Government (MHCLG), said that the department is cranking up technical work on the review following the general election.

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March 25th, 2020, Manchester
Council treasury investment & borrowing

He said that, although no firm decisions have been made, commercial income is likely to be excluded from the “resources adjustment” used to work out how much money councils need to provide services.

Speaking to the Local Government Association’s (LGA’s) Local Government Finance Conference last week, he said: “My guess is that what we will not take into account sales fees, charges or commercial income.

“No final decisions have been made on that yet. But my guess is we won’t take that into account.”

He said that including commercial income could reduce incentives for councils to pursue it as a source of income, and that some councils face restraints on raising or spending such income.

Richard Harbord, former chief executive of Boston Borough Council, told Room 151: “Commercial income is now quite a vital part of local authorities’ income.

“It is a bit strange if they excluded it from the resources adjustment – some councils will have low resources on paper but high commercial income and they may do better from future settlements under this scenario.

“You could say that they are being rewarded for taking commercial risks, but it is a little hard to follow the logic.”

Hoggan also told delegates that the government has yet to take a decision on whether to include deprivation as a factor in the calculation of base funding to local authorities.

MHCLG provoked consternation in some quarters of the sector after it published plans last year to remove the current deprivation measure in the foundation formula.

Hoggan said: “When we last consulted, we proposed just a simple population-based allocation.

“Many of you in responding said ‘that’s fine but we would also like to see deprivation included in there’.”

However, he said that a decision has yet to be taken on whether to reinclude deprivation within the foundation formula. Hoggan also revealed that the department is minded to use a single national notional value for council tax levels in calculating the resources adjustment, because using actual levels would “unfairly discriminate between areas”.

But Harbord said: “Some councils, like Westminster, which have very low council tax levels would do very well from that approach, and some people won’t like it.”

Hoggan said that the government intends to revive the technical working groups being run in conjunction with the LGA in order to get the review, set to be implemented for 2021/22, back on track.

The official prefaced his remarks by saying that thinking over the direction of the review could change, depending on the attitude of the new ministerial team in the department.

He said: “We are still very early in the period of the new government. We have only had a few days with the current set of ministers and we focused in that time on delivering the provisional settlement.

“Therefore everything I say is the current basis on which we are working, based largely on the pre-election position.”

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