Today the House will debate the latest Local Government Finance Settlement. This settlement continues the recent trend of reducing funding for authorities.

Funding in the central announcement (Settlement Funding Assessment), is set to decrease by 21%, across 2014/15 and 2015/16. However, the Government prefers to discuss a 5% decrease. How do these different figures arise, and just how large have reductions been since the Coalition came to power?

Different definitions paint a different story

Different definitions allow those at opposing ends of the argument to put forward figures that better suit their case.

Since the Coalition Government came to power they have discussed the annual settlement in terms of Revenue Spending Power (RSP), taking the settlement funding (Settlement Funding Assessments since 2013/14; Formula Grant in previous years) and adding in other central government funding and council tax. This, they argue, gives a clearer picture of the total revenue funding available to local authorities. Others argue that it conveniently allows for smaller funding reductions to be reported, whilst not solely reporting on funding provided by the Government: council tax, for instance, is not a Government grant.

A moveable feast

Items included in the Government’s preferred definition have grown over the years, with consistently more social care and public health funding added in.

Originally, the vast majority of authorities could spend RSP as they wished: elements of it were generally not ring-fenced for specific purposes. This changed in 2013/14 with the inclusion of roughly £3bn of ring-fenced Public Health Grant.

In 2015/16 RSP includes a fund not held within local authorities’ budgets: the Better Health Care Fund is a pooled budget held within the NHS, for local authorities and Clinical Commissioning Groups (CCGs) to spend on agreed priorities. As the DCLG Minister, Brandon Lewis MP, says, “It is NHS money, but it is local authorities who will be involved in the planning of it and decisions about how it is spent”. The rationale for including this funding is that RSP is ‘the money that is spent in a local area that a local authority makes decisions on or has influence over.’

Some commentators have suggested that local government funding could benefit from being passed over to an independent body, such as the Office for Budget Responsibility, and out of the hands of politicians. However, whatever definitions you use, or items you add or remove, there continues to be only one trajectory for local government funding: downwards.

% Annual change in LGF

Cumulative impact, 2010/11 – 2015/16

The downward trajectory continues a pattern began in the 2011/12 settlement: by 2015/16 settlement funding for councils and fire authorities will have decreased by over 35% on 2010/11. Over the same period RSP will have decreased by 14%.

Authorities have not all faced the same level of reductions, although % reductions in settlement funding have been more evenly distributed than those of RSP. Data for individual authorities is available in interactive tables produced by the Library.

The majority of regions have seen their settlement funding decrease by around 40% the exception is London where the Greater London Authority distorts the figures. As the chart below shows, the regional distribution of RSP reductions is more varied.

Cumulative % Change in RSPSimilar patterns emerge when considering funding measures by deprivation of authority: settlement funding % reductions are fairly similar across the deprivation distribution; RSP reductions vary, with the most deprived single tier authorities, seeing a reduction of over 20% and the least deprived less than 5%.

% Change in Funding MeasuresWhilst the Government’s use of RSP does allow for the reporting of smaller annual percentage reductions, the variations it introduces across regions and by deprivation also provide ammunition for those arguing that recent settlements are “unfair”. Critics argue that more deprived authorities should not see larger reductions than less deprived areas.

For further information, see the Library’s note on Local Government Finance Settlement 2014/15.

Author: Matthew Keep