Local government sector on course to see above-inflation increase in core spending power next year, Levelling Up Secretary insists

December 6, 2023

Approximately £64bn will be made available in 2024-25 to the local government sector, up from £59.5bn, the Government has said in a policy paper.

The paper, Local government finance policy statement 2024 to 2025, was issued yesterday (5 December) in advance of the provisional Local Government Finance Settlement.

It comes as Levelling Up Secretary, Michael Gove, is due to appear before the Levelling Up, Housing and Communities Committee to be questioned in a session about local authorities in distress.

It also comes as separate research published by the Local Government Association and the County Councils Network warned of a prospective rise in the number of councils issuing section 114 notices.

The policy paper confirmed that the Revenue Support Grant will increase in line with the Consumer Price Index (CPI) of inflation.

It also said the Government would “continue to protect local taxpayers from excessive council tax increases”, setting out a range of proposed council tax referendum principles which it claimed “strikes a fair balance and is an additional local democratic check and balance”.

The principles are:

A core council tax referendum limit for local authorities of up to 3%;
A council tax referendum principle of up to 3% or £5, whichever is higher, for shire district councils;
An adult social care precept of 2% for all authorities responsible for adult social care services;
A council tax referendum principle of £13 for police authorities;
The core council tax principle of up to 3% will apply to fire and rescue authorities; and
No council tax referendum principles for mayoral combined authorities or town and parish councils, but the Government will review the decisions taken by these authorities when considering referendum principles in future years.
A bespoke additional council tax flexibility of up to £20 on Band D bills for the Greater London Authority (GLA), as requested by the Mayor of London.

In a written ministerial statement, Gove said: “At this year’s Settlement, we are on course to provide an above-inflation increase in funding to the sector. We estimate that the Settlement will make available approximately £64 billion to the sector, and expect that councils will see, on average, an above inflation increase in their core spending power next year. In cash terms, this is an increase of around £4 billion for the sector, or over 6%.

“At this time, we also recognise the need to provide stability to the whole sector, and we are therefore providing a sector-wide funding guarantee. This will be on the same terms as last year, ensuring that all local authorities see a minimum 3% increase in their Core Spending Power before taking any local decisions on council tax levels.”

Gove added: “Local authorities should of course be mindful of cost-of-living pressures when taking any decisions relating to council tax….The council tax referendum provisions are not a cap, nor do they force councils to set taxes at the threshold level. It is for individual local authorities to determine whether to use the flexibilities detailed above, taking into consideration the pressures many households are facing.”

The Minister also suggested that in the final year of the current spending review period, “now is the time for stability and continuity, and we will therefore not be pursuing any fundamental reforms to the system”.

Gove acknowledged that “despite recent decreases in the rate of inflation, pressures still exist for local authorities”.

He said the Government would ask authorities to continue to consider how they can use their reserves to maintain services over this and the next financial year, "recognising that not all reserves can be reallocated, and that the ability to meet spending pressures from reserves will vary between authorities".

The Secretary of State also highlighted the availability of the Exceptional Financial Support framework to provide support where a council has a “specific and evidenced” concern about its ability to set or maintain a balanced budget, including where there has been local financial failure.

“Where councils need additional support from government, they should take every possible step to minimise the need for that support to be funded by national taxpayers, while also recognising the cost-of-living pressures on families. As part of that process, the government will consider representations from councils, including on council tax provision,” he said.

The Secretary of State also used the written ministerial statement to renew his attack on councils adopting a four-day working week, saying they should cease doing so immediately.

All of the proposals set out in the policy statement will be subject to the usual consultation process within the Local Government Finance Settlement. The written ministerial statement covers England only.

Responding to the policy paper, LGA Chair Cllr Shaun Davies said: “It is good that the Government has provided further clarity for councils on important funding streams for 2024/25.

"However, we urge the Government to address the growing financial issues facing councils. Severe cost and demand pressures means the local services our communities rely on every day have been left potentially exposed to further cuts, although local councils are working hard on transformation to reduce costs where possible.

“The Government needs to use the forthcoming provisional Local Government Finance Settlement to address the acute financial challenges faced by councils. In the long-term, councils also urgently need greater funding certainty through multi-year settlements.”

Cllr Elizabeth Dennis, finance spokesperson of the District Councils’ Network, said: “The tight funding settlement announced today means most district councils will feel they face no alternative other than to put up council tax bills in order to safeguard the services upon which their communities depend.

“Even if councils go for the maximum council tax rises allowed, the small growth in our income comes nowhere near to keeping up with the inflationary and demand pressures that have accumulated over the past two years and will continue into the next year.

“The last thing we want to do is to scale back the preventative and value-adding services on which our communities depend and which save money for the NHS, wider public sector and the taxpayer – such as leisure and wellbeing, housing, homelessness prevention, and community outreach. But the likelihood is that many councils will have to do this.”

She added: “Councils need more freedom to set council tax, fees and charges locally at a level which meets the needs of their local communities. We call on the Government to look again and act to help us preserve these vital local services for the benefit of the whole of local government and the taxpayer.

“This is not a sustainable way of running local government finance. We need to devise a new system which gives councils long-term security to invest in and develop their services, and can help refocus public expenditure towards early intervention and prevention.”