Government sets average 4.4% cut in funding for councils in 2011/12

The provisional local government finance settlement for England for 2011/12 will see a 4.4% average cut in spending power across all councils, the government has announced.

Ministers insisted the settlement was progressive and represented a fair deal that would “enable councils to protect the front-line services people rely on, shield the most vulnerable places, safeguard the most vulnerable people, and protect taxpayers’ interests”.

However, the Local Government Association described the settlement as the toughest “in living memory”, warning that some individual councils faced a reduction in central government funding of up to 17% in the first year. The LGA predicted that cuts in services were inevitable.

Key elements of the settlement – which will distribute £29m in 2011/12 and £27m in 2012/13 – include:

• A change in the way that central government grants are calculated. The focus for this settlement was on the impact of grant reductions on the spending power and financial position of individual councils “in the round”, ie not just on formula grant. Funding from the Department for Health, for example, is taken into consideration
• The average spending power reduction across all councils will be limited to 4.4% in 2011/12
• No council will face a reduction of more than 8.9% in spending power in 2011/12 or 2012/13
• The creation of four separate grant bands to group councils into. This is based on the extent to which authorities are reliant on government funding. Each band has different limits on the reductions they face
• A transitional grant of £85m in 2011/12 and £14m in 2012/13, designed to help councils manage issues related to the ending of the Working Neighbourhoods Fund
• A £650m fund to allow local authorities to freeze council tax in April 2011. This funding will continue over the spending review period
• No council tax revaluations
• Rolling £2.4bn into the formula grant to support adult social care services.

Communities Secretary Eric Pickles argued that government had been "living a credit card lifestyle at taxpayers' expense and now it's time to pay off some of those bills”.

He said: "There has been a great deal of speculation and scaremongering about what the implications of the local government settlement might be. The reality is that despite the toughest economic circumstances in recent memory, the coalition government will ensure that next year the average reduction in councils' spending power will be 4.4%.

"By adopting an intelligent and fair approach to the way funding is allocated we have been able to ensure those parts of the country that are most reliant on central funding continue to get the lion's share of the taxpayers' money that is available. Funding fairness underpins this settlement.”

Pickles also pointed to the freedoms councils would have as a result of the removal of the vast majority of ring-fencing, and the powers contained in the Localism Bill.

He added: "The need to reduce public spending means that this is a unique settlement, but also a unique opportunity for councils to show how efficient they can be, root out the wasteful spending that still exists and ensure that money goes to the frontline public services."

Baroness Margaret Eaton, chairman of the Local Government Association, said: “This is the toughest local government finance settlement in living memory. A few councils have seen a reduction in the money they receive from the Government of up to 17% in the first year. As a result councils face a total funding shortfall of £6.5 billion over the next year.

“We have been clear that the level of spending reduction that councils are going to have to make goes way beyond anything that conventional efficiency drives, such as shared services, can achieve. We have to face the fact that this level of grant reduction will inevitably lead to cuts in services.”

Baroness Eaton acknowledged that the government had recognised the impact the cuts will have on those areas of the country that rely most heavily on the public sector and had provided a "limited" amount of new money to help those areas cope.

“However, it still remains the case that the cuts are frontloaded rather than spread evenly across the four years," she said. "Councils now face incredibly tough choices about the services they continue to provide and those they will have to cut. It comes at a time when councils are seeing cost pressures mounting on services such as adult social care, child protection, waste management and flood defence.

“Councils knew the cuts were coming and did all they could to prepare. We already cut more than £1bn from our budgets in the middle of this year. We will now pull out all the stops to minimise the impact of these cuts and build on our record of delivering new and better ways of doing things.”

Andy Sawford, chief executive of the Local Government Information Unit, predicted that the DCLG’s announcements in relation to funding and the Localism Bill would have a huge impact on local councils and local communities.

He said: “Together they represent unprecedented change in our public services and in the governance of Britain. The finance settlement will be very tough for councils and there is no doubt that some, if not all, will have to make major cuts in spending.

“It is welcome that the Secretary of State has moved to decrease the impact of frontloading the level of cuts, however the quick fix mechanism for damping down variations in council grants does appear to have created a real dog’s breakfast in which some councils will be left wondering whether they are receiving a fair allocation of funding. What is also clear is that even with the attempts to soften the impact, some councils are going to be facing much bigger cuts than others.”