Settlement shocks 15 councils with early loss of RSG

A small group of district and borough councils – more than half of them located in Surrey – are set to become the first local authorities to completely lose revenue support grant funding in less than 16 months’ time.

Communities secretary Greg Clark today laid out details of this year’s local government settlement, which will require English councils to make average savings of 6.7% between now and 2020.

Last month, chancellor George Osborne announced that RSG would be phased out for all councils over the Spending Review period in return for 100% retention of business rates.

But the provisional settlement anticipates that 15 councils – eight of them in Surrey and three in Kent – are set to lose RSG completely from April 2017.

Peter Stuart, president of the Society of District Council Treasurers, told Room151: “The settlement announced this week has very much surprised district councils with the withdrawal speed of RSG.

“Whilst in some cases this will be mitigated by the award of new homes bonus in 2016/17, it does seem to adversely affect low tax base authorities  with less capacity to build new homes.

“By the following year it looks as though we all need to get used to continuing and increasing scarcity.”

The first 15 councils – eight in Surrey – to move to zero RSG (listed below) now face revising their financial strategies to cope with the early removal of the grant.

Kelvin Menon, executive head of finance at Surrey Heath Borough Council, told Room151: “The announcement was a surprise. We had been expecting our RSG to fall by £400,000 but now that figure is set to be £650,000.

“If we raise council tax by 2% that only gives us an extra £150,000, so we will have to look at shared service and revenue raising arrangements if we are to make up the shortfall.”

David Barnes, joint strategic director in charge of finance at Christchurch and East Dorset councils, said: “We had assumed we would lose what was remaining of the RSG on a year-by-year basis but our grant at East Dorset has been cut by 72% from this year to 2016-17 and then disappears completely in 2017.

“The reduction for next year is only 56% in Christchurch and at the moment we can’t work out the reason for the difference.”

Paul Dossett, partner and head of local authorities at accountant Grant Thornton, said the earlier than expected RSG changes “just accelerate some of the hard thinking about top-ups and tariffs” which are being retained in order to equalise the effect of business rate retention across the country.

Chartered Institute of Public Finance and Accountancy (CIPFA) chief executive Rob Whiteman said it is likely that

district councils will find a greater squeeze on their budgets due to a reduction of new homes bonus by around £800m between now and 2019-20.

Announcing the settlement to Parliament, the local government secretary said he would give councils the option of receiving a guaranteed budget for four years if they can demonstrate year-on-year efficiency savings.

The move has been made partly in order to help local authorities dip into their reserves, he said.

“Local government has consistently told me, and for generations told my predecessors, that greater certainty about their income over the medium term would allow them to organise more efficiently and strategically, and put some of those safety-net reserves to more productive use,” he told MPs.

Lord Porter, chairman of the Local Government Association, said: “The LGA has long-argued that it is crucial for councils to be able to plan ahead for more than 12 months at a time.

“This is an important step towards the financial certainty councils need to run important local services to the high standard our residents deserve and will allow councils to review the level of financial reserves they need to hold.”

But he warned that councils still faced significant financial challenges from “general inflation, cost pressures in the care sector, increases in the number of adults and children needing support and rising levels of need, increases in demand for everyday services as the population grows and pressure on homelessness budgets and increases in core costs such as national insurance, the National Living Wage and pension contributions”.

Whiteman added: “Replacing central government funding with fully retained business rate revenues introduces real risk to council finances.

“It is something of a gamble for many vital public services – as the assumptions underpinning greater localisation are that the economy continues to grow and a much greater number of new homes are built, which recent experience shows is anything but certain.”

The 15 authorities set to become the first to receive zero RSG from April 2017 are:

Bromsgrove District Council, (Worcestershire)
Chiltern District Council (Buckinghamshire)
East Dorset District Council (Dorset)
Elmbridge Borough Council (Surrey)
Epsom and Ewell Borough Council (Surrey)
Maidstone Borough Council (Kent)
Mole Valley District Council (Surrey)
North Hertfordshire District Council (Hertfordshire)
Reigate and Banstead Borough Council (Surrey)
Sevenoaks District Council (Kent)
Spelthorne Borough Council (Surrey)
Surrey Heath Borough Council (Surrey)
Tandridge District Council (Surrey)
Tonbridge and Malling Borough Council (Kent)
Woking Borough Council (Surrey)