Counties welcome ‘fairer’ settlement measures, but call for pilot resources to be reinvested

The County Councils Network (CCN) has welcomed proposed measures in the local government finance settlement that could make grant funding for councils fairer, but argue that funding saved from downgrading business rates pilots to 75% retention should be invested into local authorities before the spending review.

CCN said that while cancelling negative Revenue Support Grant (RSG) and reviewing New Homes Bonus (NHB) could make the settlement fairer over time, government must inject new resources for the next financial year ahead of the fair funding review. CCN said that if the government downgraded two-tier pilots but maintained 100% pilots for other parts of the sector, as a matter of fairness it must reinvest the remaining 25% as a cash-injection for councils facing huge demand-led pressures.

CCN argues that while the decision on negative RSG, in effect, accepted the network’s arguments that the changes to the funding formula in 2016 – which increased the pace of cuts for counties – were wrong, new funding and the outcome of the fair funding review must deliver a truly needs-led, fair funding formula, for all councils.

Research published recently from the network showed that counties face cost pressures of £3.2bn over the next two years, the majority of which is down to projected demand. Whilst county leaders believe they will be able to deliver a balanced budget this year, 17% were ‘not confident’ and 19% ‘neutral’ on whether they will be able to deliver a balanced budget in 2019/20 without extra resource.

Separately, CCN have welcomed the review of NHB, suggesting that the policy has proved unfair to county councils and has failed to genuinely support housing and infrastructure delivery.

The bonus, which is top-sliced from Revenue Support Grant, has meant that county councils have been left financially worse off and it has re-routed resources towards areas of high housing growth rather than areas facing the most demand for services.

The technical consultation set out the government’s intention to explore other methods of incentivising housing growth most effectively.

By the government’s own admission, New Homes Bonus has failed on its key policy objectives such as being spent on ‘local community priorities’ and to support the delivery of infrastructure to mitigate development. The government’s consultation on the policy, ‘Sharpening the Incentive’ showed that 66% of bonus cash, on average, was being spent on general council services, or to keep council tax low.

In total, the consultation found 10% is spent on infrastructure, an issue county leaders say is further exacerbated by the 80-20 split of money from the bonus in favour of district councils, further hampering the county’s ability to invest in infrastructure to match new housing.

On top of this, an uneven distribution between district and county of funds arising from developer contributions also means that county councils do not receive a fair proportion of this funding to dedicate to highways improvements and vital community services such as schools and healthcare.

The CCN states that any abolition of the policy must mean that all resources go back into grant funding for upper-tier and unitary councils, while establishing new incentives for all tiers of local government to support business and housing growth.

Cllr Paul Carter, chairman of the County Councils Network, said:

“CCN welcomes the announcement that negative Revenue Support Grant (RSG) will be cancelled. The decision is recognition of CCN advocacy and, in effect, accepts our arguments that the changes to the funding formula in 2016, which led to higher cuts to counties, unfairly penalised counties. As we move towards a new financial model, it is critical that the fair funding review now delivers a truly needs-led, fair funding formula, for all councils.

“While some counties will benefit from the negative RSG decision next year, CCN have argued that all our members will need additional resources during the next financial year. Our members face cost pressures of £3.2bn over the next two years, and we will be setting out over the coming weeks our proposals for short term support ahead of the conclusions of the spending and fair funding reviews. 

“Given the announcement that business rates pilots available to counties will be reduce to retaining 75%, this should include exploring the reinvestment of the additional 25% through the settlement. This is essential, particularly if London and city regions continue to benefit disproportionately from 100% retention next year.

“The announcement that New Homes Bonus will be reviewed is welcome. The existing scheme has proved unfair for county councils, leaving them financially worse off and not achieving its aims of supporting housing development and the provision of infrastructure. 

“The review presents the opportunity to ensure that more resources are distributed based on a needs-led fair funding formula, while putting in place new incentives for all tiers of local government to support business and housing growth.”