On Monday 11 January 2016 the House of Commons will debate the motion “That this House has considered local government funding for rural areas”.

Subject Specialist for local government: Mark Sandford, x1136

Statistician: Neil Johnston, x6789

The Local Government Finance Settlement sets out the amounts of central government funding allocated to each local authority (and each fire and rescue authority) in England for 2016-17. It also includes indicative amounts for the next four years. The funding lines included are:

  • Settlement Funding Assessment: this is made up of retained business rate revenue, which is then subject to either a ‘tariff’ (a subtraction) or a ‘top-up’ (an addition), and Revenue Support Grant. The tariffs and top-ups are a system of redistribution between wealthier and more deprived local authorities;
  • New Homes Bonus funding: local authorities receive an extra sum of money for each new house completed in their area;
  • Improved Better Care Fund: this consists of additional funding to be used to contribute towards extra spending on social care. Local authorities will also be able to raise council tax to contribute towards greater spending on social care (see below). Allocations of funding under the Better Care Fund will take into account each authority’s capacity to raise council tax.
  • Rural Services Delivery Grant: a non-ringfenced grant to authorities in the highest quartile of ‘sparsity’, recognising the extra costs of delivering public services in rural authorities;

The Rural Services Delivery Grant was described as follows in the consultation paper:

Additional funding to support rural areas

2.20 The Government recognised in 2012 that there may be additional costs associated with service delivery in rural areas, introducing weighted sparsity adjustments to the relative needs formula in setting the baseline for the current system of business rates retention in 2013-14,

2.21 In recognition of possible additional costs for rural councils, additional funding was provided in 2013-14, 2014-15 and 2015-16 as a separate grant or through a transfer of funding into the settlement. This was allocated to the top quartile of local authorities on the basis of the super-sparsity indicator: a proxy for rurality which ranks authorities by the proportion of the population which is scattered widely, using Census data and weighted towards the authorities with the sparsest populations. In 2015-16, the Government increased total additional rural funding (paid through a separate element) from £11.5 million to £15.5 million.

2.22 In order to establish a fuller evidence base for decisions on rural funding, the Government commissioned independent external research in 2014 on whether rural councils face additional unavoidable costs in service delivery compared to urban councils. The research involved the Local Government Association and the Rural Services Network, as well as a range of rural and urban councils. It looked at the evidence on costs at the level of individual services, and is based on interviews with a sample of councils and national expenditure data.

2.23 Several drivers for additional rural costs were identified in the research, including the small size of rural councils, scattered and remote populations, lack of private sector providers, and poor broadband and mobile coverage in rural areas.

2.24 The Government has considered this independent research and decided that the local government finance settlement should continue to recognise the additional costs of delivering services in sparsely populated areas by again increasing the Rural Services Delivery Grant. £20 million will be held back from Revenue Support Grant in 2016-17 and paid as an un-ringfenced section 31 grant to the upper quartile of authorities based on the super-sparsity indicator, which the Government considers remains the best available proxy for rurality. The Government intends to increase this to £65 million by 2019-20, which will form part of the statutory consultation on future local government finance settlements.

Capital assets

Local authorities are also to be given permission to sell capital assets and use the proceeds for spending on specific projects. It is unusual for permission to be given to spend capital receipts on revenue expenditure. This is known as ‘capitalisation’, and the Government normally controls the overall amount that can be transferred between capital and revenue spending in this way. More information is available in the document Guidance on the flexible use of capital receipts, which was published alongside the settlement. This sets out the types of activity on which capital receipts may be spent under this policy.

New Homes Bonus

The amount of funding available for the New Homes Bonus will be reduced over the next few years. The Government has also published a consultation on changing the incentive structures of the New Homes Bonus.

Subject Specialist for local government: Mark Sandford, x1136

Statistician: Neil Johnston, x6789

Department for Communities and Local Government (DCLG)

The DCLG has brought together all documents relating to the provisional local government finance settlement: England, 2016 to 2017.  Key documents include:

Parliamentary Question

Oral Parliamentary Question asked on 14 September 2015 on funding in urban and rural areas

Heidi Allen (South Cambridgeshire) (Con): What steps the Government are taking to reduce the difference in funding levels between urban and rural areas. [901313]

The Minister for Communities and Resilience (Mr Mark Francois): Our reforms give all authorities substantial scope to increase revenues through promoting growth. I accept that most rural authorities face challenges in delivering services that other authorities do not. Consecutive local government finance settlements have delivered a steady reduction in the gap in spending power levels between urban and rural authorities.

HC Deb 14 Sep 2015 c751 

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