Deprived areas cannot shoulder the greatest burden of austerity

Posted on January 26, 2018

Following our recent appeal for a more collaborative, consensus-driven approach within the local government sector, we were disappointed by renewed calls from the County Councils Network to extend transition grant as part of this year’s final finance settlement.

This is a grant that uses fast diminishing resources to perpetuate a state in which some of the most deprived authorities in the country continue to shoulder the greatest burden of cuts under the Government’s program of austerity.

Its purpose is to negate losses in RSG for some of the most affluent, despite the Government’s recognition, according to its own needs formula, that they were receiving more than their fair share.

To understand why this regressive allocation was adopted, and may yet be allowed to persist, we need only look back to the 2016/17 settlement.

At the time, MHCLG recognised that the previous basis for apportioning cuts to RSG had increasingly undervalued the influence of council tax on authorities’ overall spending power.

Their change to its allocation basis therefore recognised and sought to rectify the fact that, historically, and in addition to advantageous formula damping, those authorities with stronger tax bases had received excessive RSG allocations relative to their actual needs – helping to insulate them from spending cuts.

This was bad for counties who, for example, raised 41% more per head in council tax than SIGOMA metropolitan boroughs and unitaries during 2016. But it helped towards fixing for future years a situation in which, according to the IFS, ‘mainly urban and poorer councils among the tenth which are most grant-reliant have had to cut their spending on services by 33% on average, compared to 9% for those richer councils among the tenth which are least grant-reliant.’

However, after aggressive lobbying by counties in which they claimed to have threatened the possibility of a back bench rebellion of rural MPs if they didn’t have their way, MHCLG eventually acquiesced, providing those that lost out with £300m in transition grant over two years.

The grant’s justification was quickly dubbed ‘wafer thin’ and proved questionable to such an extent that it prompted an investigation by the National Audit Office (NAO).

The NAO’s report drew attention to the fact that ‘although the grant was to mitigate the impact on the financial planning process for authorities that received unexpected reductions, the department provided funding for two years’.

They were even told by MHCLG that ‘factors such as the overall reductions in spending power experienced by authorities either in this or previous settlements were not involved in the design of the grant. The level of need or demand for local services was also not considered.’

The counties now argue that since 100% business rates retention won’t be implemented in 2019/20, they are somehow entitled additional compensation for a further two years – the remainder of the four year settlement.

In 2017, MHCLG told the NAO: ‘Authorities that lost out under the new model were compensated via transition grant for the impact of the unforeseen funding reductions on their budget planning, not because their losses or challenges were any worse than other authorities’.

This year, however, there are no such unforeseen circumstances. Authorities that received transition grant have had two years to adjust and all authorities, not just those that raise the most council tax, face uncertainty as they transition towards full localisation of business rates.

On this basis, we welcomed the absence of transition grant from the secretary of state’s provisional settlement and commend the minister and his department on their resolve. Not because it deprived affluent councils of funding but because its absence frees up potential additional funding for all councils on the basis of demonstrable need.

We hope there will be no surprises in the final settlement, and encourage MHCLG to resist the mounting political pressure to put fairness on hold for another two years.