Local Government Finance

1. Local Government Finance

2. Cuts, cuts, cuts – the issues • Spending squeeze on public sector means council grants from Govt. being cut by 28% over four years • Public angry over cuts to services and closures of facilities and job losses • “Democracy dodgers” – councils defying Govt. call to freeze council tax • Demand for many council services increasing putting extra pressure on budgets • People on benefits now having to pay council tax for first time

6. Revenueexpenditure Essentially, a council’s day-to-day running costs necessary to provide services It covers: • Employees pay • Repair and maintenance of land and buildings • Payments to contractors or suppliers • Grants to organisations

7. Capitalexpenditure Spending on building things like: • Building new schools • Roads • Facilities like sports centres/libraries • Major items of equipment (eg IT) • Large capital projects usually cover three to five year periods – spread the costs

8. The Council Tax (funds revenue expenditure) A hybrid tax based on property element and personal element How much you pay is based on: i) Property bands: Band D (£68,000-£88,000) is the average (middle band) – Band H (more than £320,000 is the highest) ii) Two adults occupying property Decisions on bands are based on property valuations as assessed by Inland Revenue Valuation Office Agency – based on property prices in 1991

9. The council tax A council tax is set by each council Resident (over age of 18) with strongest legal interest is liable to pay In two-tier areas, districts/boroughs are responsible for sending out bills and collecting payments Council tax levels must be set by full council

10. Council tax bands Band A - <under £40,000 Band B - £40,001 to £52,000 Band C - £52,001 to £68,000 BandD - £68,001 to £88,000 (the average) Band E - £88,001 to £120,000 Band F - £120,001 to £160,000 Band G - £160,001 to £320,000 Band H – more than £320,000

11. Discount and exemptions Single person households discounted by 25% Those on low incomes or benefits receive rebates Full-time students in student accommodation; those in care homes and homeless in hostels do not pay Bills for second home owners may be discounted (10 to 50 per cent - at council’s discretion)

12. Exemptions Properties are exempt where: They are empty and unfurnished for more than 6 months Empty and where person is in hospital or long-term care Empty and where person is in prison

13. Council tax bills Bills are made up of different “precepts” - another word for the council tax sum being levied - of the different charging authorities: In two-tier areas: County council precept (the highest amount) District/borough council precept In unitary areas: The unitary precept

14. Council tax bills • All council tax bills also include: • Police And Crime Commissioner precept • Fire authority precept And if there is one: • Parish or town council precept

15. How council tax has risen Average bill 1995: £609 Average bill 2012: £1,201 Kent County Council bill 2012: £1,047 Medway Council average bill: £1,113 Three Kent councils are increasing bills in 2013 – Tunbridge Wells, Gravesham, Canterbury

16. Is it fair? Regressive: unrelated to ability to pay; those in lower bands pay proportionately more Tougher on those on fixed incomes (pensioners) Valuations out of date – wide regional variations Bills have increased above rate of inflation Does not give councils financial autonomy or enhance accountability

17. Capping Govt. has reserve powers to “cap” a council’s budget if deemed excessive Powers to either nominate or designate Used to halt excessive council tax increases Can mean councils having to issue new bills

18. New – local council tax benefit schemes • Govt. says councils must now arrange council tax benefit schemes • But councils say Govt. has not given enough money to do so – grant has been cut by 10% • Pensioners continue to be protected • But others on welfare benefits being asked to pay council tax for first time • Typically, about 8.5% of average bill

20. Referendums… • Govt. says any increase in council tax of 2% or more should be subject to public vote • Most councils evading this by increasing by less than 2% • Leading to “democracy dodgers” complaint by Mr Pickles

21. Where the money comes from • Central government provides the lion’s share of council money (approx 75 per cent) – controls of purse strings • Money from Government comes in the form of different grants (called ‘specific’ and ‘general’ grants) • Spending framework for all public services set over three year period • More specific figures come via the yearly Local Government Finance Settlement (usually November)

22. Government grants Grants in all forms are known as AggregateExternalFinance. This money supports: • Revenue expenditure • Capital expenditure • Housing expenditure

23. Government grants for revenue expenditure Formula Grants • Block grants that can be spent by council as it sees fit on revenue expenditure (around 40% of govt. grant money) • Based on formulae that take into account council tax base (ie how much can be raised) and how many people rely on services

24. Specific grants • Grants paid for particular services (60% of government aid for revenue spending) • Includes bulk of money for schools (Dedicated Schools Grant - DSG) • Some specific grants are ring-fenced (money comes with conditions) • Some are unfenced/targeted (no restrictions)

25. Specific grants - DSG The Dedicated Schools Grant: • Provides funding for schools • 100% from the DfE • Councils have no say in how it is spent – just pass it on to schools – “passporting”

26. Revenue Support Grant - RSG • Post 2006: accounts for much smaller slice of grant aid to councils – about five per cent. How much a council gets is based on: • Relative Needs Formula (RNF) – formula based on various factors: deprivation; high wage costs; tourism; commuters • Relative Resource Amount (RRA) – how much councils can raise from council tax. In effect, a Govt. judgement about an authority’s ‘wealth’ • Central Allocation (CA) – additional money based on population

27. Area based grants (ABG) • Designed to encourage partnership working – councils with other organisations, eg charities; businesses; neighbouring authorities • Aimed at improving efficiency; cutting costs and avoiding duplication of services • £45billion of ABGs has gone to councils in 2009

28. Govt. approach to revenue grants • Vulnerable communities a priority – deprived areas with social challenges • Protection for social care • Council tax freeze – funded by extra 2.5 per cent in grants for councils • Power for residents to veto council tax increases in future years through referendums

29. Uniform business rates • Paid by occupiers of commercial and industrial properties (shops, factories, businesses) • Based on rateable value of property x national multiplier (set by Government) • Collected by district councils but passed to Government for redistribution (based on ‘need’) • Also know as National Non-Domestic Rate

30. Relief/discounts on UBR • Small business rate relief (<£50,000 = 50% discount) • Lower multiplier for those with rateable values between £10,000 - £14,999 • Empty properties • Charities and charity shops • Non-profit organisations • Agricultural land

31. Uniform business rates • How formula is calculated: • Rateable value of property x National Multiplier • For eg, where premises have rateable value of £50,000 and multiplier is 50 pence, the UBR is £25,000

32. Fees and charges • Parking • Planning application fees • Allotments • Libraries • Leisure centres • Social care • + others specific to councils, (eg Kent Freedom Pass fee rising to £100 in 2011)

34. Capital funding – how it works • Borrowing to pay for capital schemes operates under what is known as “prudential borrowing regime” (Local Govt. Act 2003) • Under PBR, councils decide how much they can afford to pay, taking into account how much they need to repay (impact on council taxpayers) • Borrowing agreements must accord with Cipfa (Chartered Institute of Public Finance and Accountancy) code • Money may be borrowed from various sources

35. Prudential funding • Govt. has reserve power to impose “ceilings” limiting how much can be spent • System encourages responsibility – how much can we (& taxpayers) afford? • Allows councils greater freedom to decide priorities • Viable alternative to PFI • Could be self-financing (eg adding facility to leisure centre that pays for itself)

36. The Private Finance Initiative - PFI • Private consortium pays upfront for project in a contract with council • Building/facility is leased back to council • Costs paid off by council over period of between 20-30 years (plus interest) after which council retains ownership

37. PFI ii • Delays or bad management usually penalised • Interest payments can mean costs rise above actual costs • PFI contracts often include arrangements for company to maintain and manage asset over relevant period

38. PFI – advantages/disadvantages Good: • Risks taken by private contractor • Enables council to get scheme built more quickly Less good: • Risk of contractors underbidding for contracts and then folding • Interest costs hike up eventual overall bill • Council ends up after agreement period with relatively old asset

41. Public Works Loan Board • Executive arm of the Treasury • Enables councils to borrow money more cheaply than if they went to the City or banking institutions • Board approves loans only if satisfied loans can be repaid • Collects the repayments, which include interest (usually lower than elsewhere) • Money drawn from National Loans Fund • Overseen by 12 commissioners

42. Capital receipts • Sale of assets, eg land, buildings, housing • One-off money: once spent, it’s gone! • Some money from any sale must be “pooled” – given to the government, which redistributes it • How much is pooled varies according to how much is raised – can be 50 per cent

43. Capital receipts ii • Since 2004, Govt has set limits on how much can be used for projects – “usable” sum • Some of the money from sale must be “pooled” – given to Government and then redistributed • Can prove controversial (eg playing fields, allotments to developers)

44. Other capital sources • Money from income raised by rents, fees and charges (eg leisure centres; library charges; fees for planning applications; parking; school meals) • Councils raised £10.8billion from charges in 2006-07 – equal to £210 per person • Income from fees/charges usually relatively small when compared with other sources

45. Other capital grants • Central govt - through national schemes, such as Single Regeneration Budget, Sure Start • European Union – via structural funds (usually to deprived/disadvantaged regions) –Objective One and Objective Two status • National Lottery