Councils claim funding settlement disproportionately benefits wealthier areas

By Jonathan Bunn, Reporter22nd January 2024News EnglandBusiness / Funding / Finance, Government / Politics, Local Authorities, News England, Poverty / Austerity, Top Stories, Welfare / Benefits

Important elements of the funding settlement for councils this year disproportionately benefit richer areas and fail to take into account a range of growing demand pressures, according to local authorities serving some of the poorest communities.

In its response to the Government’s consultation on the settlement for 2024/25 published last month, the Special Interest Group of Municipal Authorities (Sigoma) said the Government’s approach shows funding decisions are increasingly less focused on local needs, raising the risk that more councils will declare effective bankruptcy.

Sigoma, which represents 47 urban councils in some of the most deprived areas in England, said the proposals are in line with a policy statement issued in 2022, before the full emergence of severe problems such as workforce pressures and spiralling costs in a “broken” children’s social care market.

The consultation response, shared exclusively with the PA news agency, raises concerns that wealthier areas are being prioritised because of the way funding is allocated.

Sigoma said an increasing reliance on council tax to boost councils’ core spending power means people are forced to pay for essential services that should be funded by the Government.

This approach does not take into account variations in the level of council tax that can be generated in different areas, leaving poorer areas disadvantaged by having a higher proportion of properties in lower, cheaper bands.

This means either average council tax charges must be much higher in areas where many households can least afford them, to cover the shortfall, or there is significantly less to spend despite higher demand for services.

Sigoma also questioned the fairness of an effort to eliminate what is known as “negative revenue support grant”, whereby councils that receive more revenue than they need from local charges pay back funding to central Government.

The move to compensate affected councils, which mostly benefits district councils in shire areas, involves hundreds of million of pounds being redirected “to the detriment of poorer areas”, Sigoma said.

“This is further evidence of the need for a full fair funding review of the local government finance system,” it added.

Concerns were also raised about the Government’s “funding guarantee”, which aims to ensure councils get a 3% annual increase in their core spending power before decisions have been taken on efficiencies, use of financial reserves and council tax levels.

However, analysis by Sigoma shows that the 30% most deprived authorities got nothing from the funding guarantee, while the 10% least deprived areas received the most per household.

Sigoma argue that the guarantee is flawed because it is calculated without recognising the level of revenue available to councils.

This imbalance is illustrated by a largely flat increase in councils’ core spending power across all levels of deprivation in 2024/25, when in the past less wealthy areas received higher increases to cover demand on services.

Sigoma’s intervention comes as 44 Conservative MPs have written to the Prime Minister to urge him to rethink funding plans for councils.

They said they are “exceptionally concerned” that their local councils are on the verge of financial crisis and will be forced to hike council tax and cut services in an election year.

Sir Stephen Houghton (pictured), Sigoma chairman and Labour leader of Barnsley Council, said the finance settlement fails to cover increasing costs and account for rising demand.

He said: “These pressures, following a decade of cuts, have pushed many councils to the brink.

“The settlement also failed to distribute funding fairly. Over the last 14 years, the method of allocating funding has been moving further and further from a needs basis, resulting in an ever-growing gap between councils in the richest and poorest areas.

“The provisional settlement cements that trend and severely undermines any notions of levelling up. The final settlement, expected in early February, must be used to provide additional funding for the most in-need places.”

Announcing the settlement, Levelling Up Secretary Michael Gove said: “We recognise councils are facing challenges and that is why we have announced a £64 billion funding package – a real-terms increase at an average of 6.5% – to ensure they can continue making a difference alongside our combined efforts to level up.”

A spokesperson for the Department for Levelling Up, Housing and Communities said: “The 2024/25 settlement will also see the most relatively deprived areas of England receive 18% more per home than the least deprived areas.”