Future funding outlook 2014

Transcription

1 Future funding outlook 2014 Funding outlook for councils to 2019/20 July Future funding outlook

2 Foreword by Sir Merrick Cockell In the last year we ve seen encouraging signs that the economy is recovering. In some parts of the country at least, there is a growing sense of optimism about the nation s finances. Of course, this is good news, but for the public services which underpin most people s daily lives, the immediate future remains a huge challenge. Councils are shouldering the biggest spending cuts of any part of the public sector and the Office of Budget Responsibility predicts that the next spending review period will see more of the same. The LGA s annual Future Funding Outlook report is now a familiar fixture in the local government finance calendar. In this third iteration, we have further improved the analysis to incorporate the latest data on current expenditure and future projections, and emerging data from the first years of the business rates retention scheme. While councils have continued to balance their budgets, the funding gap in local government is still growing by 2.1 billion each year. Closing the gap each year demonstrates councils resilience, but each efficiency saving that is found reduces the potential for efficiencies in future years, so many councils are forced to look for savings from service reductions. As the economy steadily improves, people will expect the services which underpin our daily lives like care for the elderly, the upkeep of our roads or the collection of our waste, to improve with it. Instead, we re on course for the upturn in the nation s finances to coincide with services teetering on the edge of failure and some councils on the brink of financial collapse. The public s expectations need, therefore, to be grounded in a new reality. People s concerns about the impact council cuts will have on their families are starting to increase but most people are not prepared to accept fewer services from their council to help pay off the national debt. This year for the first time we have produced a companion report to this one detailing the impacts not just on a typical AnyCouncil but on the AnyHouseholds that live there, and the services they use. I hope this report highlights both the stark circumstances faced by local councils and local people, and the innovative and collaborative work being done to continue to deliver quality services. But if residents expect improving services to match the recovering economic situation, then a new, fairer settlement for local government is vital. It is only by breaking down the barriers which stand between decisions taken in Whitehall and services provided by town halls that we can really start the process of redrawing public services. Now is the time for all politicians to show real leadership. We need to be open and we need to be radical if we are to ensure that post-austerity Britain is not stifled by the designs and expectations of a pre-austerity age. Councillor Sir Merrick Cockell Chairman of the LGA 2 Future funding outlook 2014

3 Contents Executive summary 4 Introduction 6 The path of council spending to date 8 The projected future path of council spending 10 The path of council funding 12 Mapping funding against expenditure 15 The use of reserves 17 Impact on individual authorities 18 What does this mean for local services and local people? 21 Future funding outlook

4 Executive Summary The purpose of this paper is to set out the impact on local government in England of future funding cuts and unavoidable growth pressures on the resources it will have available for services between now and the end of this decade. Councils have managed so far to balance their budgets and fulfil their statutory obligations as well as delivering a range of services to promote growth and community cohesion. Each year to date they have closed the funding gap in the face of funding cuts and expenditure pressures. From 2010/11 up to 2013/14, local authorities had made savings of 10 billion 1, largely through finding efficiencies in existing services. But there is a limit to what can be achieved. Our analysis of budget strategies shows that two thirds of councils believe that efficiencies will be running out by 2015/16. 2 The funding gap is growing at an average of 2.1 billion a year, adding up to 12.4 billion by the end of the decade. It is created by a combination of funding cuts and spending pressures. This confirms the picture in the previous modelling exercises in 2012 and Despite growth in the local economy, government projections show continuing funding cuts for local authorities well into the next Parliament. The main political parties agree that public spending will contract at least until 2018/19. On the same trajectory of cuts that has been experienced to date, over the period to 2019/20, if we exclude ringfenced public health expenditure, spending must fall by 21 per cent in cash terms or 33 per cent in real terms. Assuming authorities can keep making efficiencies at between 1 and 2 per cent per year, the model predicts an increase in expenditure in cash terms of 1.7 per cent per year just to maintain the existing level of service. With social care and waste spending absorbing a rising proportion of the resources available to councils, funding for other council services drops by 43 per cent in cash terms by the end of the decade, from 26.6 billion in 2010/11 to 15.0 billion in 2019/20. To put this in context, this 11.6 billion drop is equivalent to the total general fund expenditure (in 2013/14) on non-schools education, highways and public transport, housing, planning and development. Authorities will have different strategies in relation to the use of reserves, but using up reserves more quickly increases risks to services and does not reduce the gap to be closed. Local Government has an excellent track record of balancing budgets in a way that minimises the impact on communities by maximising efficiency savings successfully. 1 LGA analysis of revenue outturn data 2 Under Pressure, LGA Future funding outlook 2014

5 Local government is widely held to be the most efficient part of the public sector. In addition councils have coped successfully with unexpected additional challenges such as the winter floods. But the AnyCouncil and AnyHouseholds appendix to this report draws on real life examples to show that reductions are beginning to have a real impact on local service users, and this will get worse as further reductions are made to balance budgets to meet the major funding reductions now forecast. While the economy is improving and people are beginning to feel more optimistic, funding cuts will mean that the quality and level of local services will continue to fall. A sustainable future for local government in the face of funding cuts and spending pressures is dependent upon changes in the way we think about funding local government, and how we manage the system. The LGA s paper Rewiring Public Services: Rejuvenating Democracy set out our vision, and at its 2014 conference the LGA will set out our proposals for what the next national government can do to move towards that vision. The Government must do more to protect the funding of vital local services. It must also devolve more power to Councils to enable them to use scarce resources better and empower and incentivise Government departments, Councils and their local partners to work together to reform public services and address at local level some of the key issues facing many communities such as the need for more housing, creation of jobs and local economic growth. Future funding outlook

6 Introduction In 2012 and again in 2013, the Local Government Association (LGA) published models of future funding for councils. The aim of these papers was to present a credible analysis of the challenges facing local councils in the current and future spending review period. They highlighted the large and growing funding gap for English local government caused by spending pressures and funding reductions. This current third iteration of the model is a further refinement on previous modelling and again shows a growing funding gap, although with each year that passes local government continues to close the gap and deliver a balanced budget as is its statutory duty. Our analysis is built from: projections of total annual net revenue spending in ten principal service blocks within council budgets over the period to 2019/20 projections of council tax, business rates, grant and other income streams over the period to 2019/20. We have projected likely expenditure pressures in all service areas, while recognising that councils are actively taking steps to mitigate cost pressures by reforming the way they deliver services. LGA research suggests that this has been achieved to date partly through innovative methods of service delivery, but partly by a reduction in the level of services councils can offer 3. Expenditure is split into ten service blocks as follows (in approximate order of size): social care education (excluding schools funding via the Dedicated Schools Grant) environment including waste highways, roads and transport housing (not including housing revenue account (HRA) or housing benefit) public health 4 culture, recreation and sport planning and development regulatory other services. Since 2012, the future funding outlook modelling has followed the impact of funding cuts on local authority budgets. The model now contains three years of outturn expenditure data, one year of budgeted expenditure data, and six years of LGA projections. This report separates expenditure into two distinct periods what has happened to date, and what might happen in the remaining years. Our projections of funding streams are now more certain than they were in previous versions: an illustrative funding settlement for 2015/16 is available, so grant figures in six of the ten years covered by the model are from published data and only the last four are derived from our projections. 3 Under Pressure, LGA Public health expenditure starts in 2013/14 although this is assumed to be funded in full by ringfenced Public Health Grant. 6 Future funding outlook 2014

7 We have modelled all future sources of council funding to the end of this decade. But rather than relying on estimates, data is starting to become available on how the funding reforms of the current government, in particular business rates retention, are impacting on councils funding positions. We have used councils estimates of their local rates collection in the first two years of the rates retention system, and projected forward from this data. We see that as a whole, England is so far only benefiting slightly from rates retention compared with the baseline funding level, and as we would expect, there are disparities in the impact of rates retention on individual authorities. To help readers to understand how these figures work for an individual authority, we have also provided a narrative showing how a typical local authority, AnyCouncil, has responded so far, and how it sees its future plans in the light of this analysis. In addition, we have undertaken some modelling of the impact of the decisions of central and local government on the local services experienced by three typical AnyHouseholds. Both the AnyCouncil and the AnyHousehold modelling are available in the supplementary paper that accompanies this report and a technical annex is available on the LGA s website at to explain the technical analysis and assumptions built into the funding model. There are inevitably areas that cannot be predicted by the model; in particular the additional pressures created by welfare reform, by forthcoming local government pension revaluations, and the unknown costs to upper-tier authorities of implementing the proposals in the Care Bill. The potential costs of these are significant. We trust that these additional burdens will be fully funded centrally, but there is a great deal of uncertainty over their costs. Because the impacts of these high-risk areas are inherently uncertain, and very dependent on local circumstances, they have been excluded from the model. If they are not fully funded, the impact on councils affected will be significant. We believe this model presents the most comprehensive picture available of the likely path of funding cuts and spending pressures across the sector. Spending pressures: inflation, demand, cost pressures less efficiency gains Income from council tax and local share of national non-domestic rates Less fees and charges Net revenue spending Revenue support grant and other grants Net change in reserves and investment income Future funding outlook

8 The path of council spending to date Figure 1: Total council expenditure in protected services from 2010/11 to 2012/ Public Transport Children s Social Care Adult Social Care Waste Management and other Environmental services All other services / / /13 Total Expenditure (2010/11 = 100) Figure 1 shows the only four service areas in which there has not been a significant reduction in total expenditure, and also the reduction in all other areas combined.5 Spending on social care, waste management and public transport in particular have not reduced and this likely to be due to a combination of the following factors: these services tend to have large statutory elements they have faced larger than average demographic pressures (and in the case of waste management, cost inflation) in recent years they are often political priorities for councils 5 Other expenditure also saw an increase in expenditure but this includes capital financing and accounting adjustments outside councils control so is not included in the analysis above. Please see the Technical Appendix for a full explanation of what is contained in each service group. 8 Future funding outlook 2014

9 But even these four protected services have not significantly increased expenditure; in public transport, for example, spending was just 2.0 per cent higher in 2012/13 than it was in 2010/11. Once inflation is taken into account, all services have actually seen a reduction in real-terms expenditure but spending varies between councils due to local choices, local conditions, and historic differences. What is certain is that local government has reduced its service expenditure considerably since the 2010 Spending Review; reductions have been in many cases delivered through efficiencies and innovative methods of service delivery. Examples of the sorts of efficiencies that have been delivered without significant impact on services are: Herefordshire County Council announced 1.2 million savings by focusing on essential back officer support and by efficiency improvements across all services currently provided by (its provider) Hoople 6 Birmingham City Council 7 announced savings of 20 million through a reduction in the ICT services in its contract with Capita from April At least 95 per cent of English councils are involved in shared service arrangements, resulting in total savings of 278 million projects led by councils and groups of councils have saved a total of 156 million through the LGA s Adult Social Care Efficiency (ASCE) programme.9 The LGA s Customer-Led Transformation Programme embedded the use of customer insight and social media to save councils a total of 65 million in direct savings, with a further 46 million projected and over 200 million through the stimulation of wider transformation programmes birmingham-city-council-faces-another content/56/10180/ /article 9 content/56/10180/ /article 10 content/56/10180/ /article But there have also been reductions in the level of service offered, examples of which include: The Association of Directors of Adult Social Services (ADASS), in its 2013 survey of social care budgets, revealed that 13 per cent of the planned savings in adult social care ( 104 million) will result in direct withdrawal of services, while nearly a fifth of councils thought that a reduction in the levels of personal budgets would be highly important. 11 The Chartered Institute of Public Finance and Accountancy (CIPFA) in its annual survey of library numbers, revealed that the number of libraries in the UK has reduced from 4,468 to 4,194 in the period from 2010/11 to 2012/13, and there were reductions of a similar scale in the number of library staff and amount of library stock 12. The Campaign for Better Transport (CBT) 13 found that 147 council-subsidised bus services have been withdrawn completely across England in response to budget cuts 11 content&id=914&itemid= asp?content= Report_AW_PDF_ pdf Future funding outlook

10 The projected future path of council spending Future expenditure trends have been modelled by identifying factors that influence costs, known as cost drivers. Full details of all cost drivers are available in the Technical Annex to this document, available at gov.uk/finance. The analysis uses credible quantifiable data and proven methods. The model also builds in efficiency assumptions. The assumption for most services is that councils start by achieving 2 per cent annual efficiency savings which tapers to 1 per cent by the end of the period. The assumption of diminishing returns from efficiency is supported by our research into the savings strategies councils are pursuing. 14 The Municipal Bonds Agency 15 gives councils much-needed and deserved freedom to raise their own capital finance, and the potential savings in interest payable are significant over a typical loan period of, say, 20 years, but it is unlikely to have any material impact in closing the funding gap until some time after The model assumes that the same level of service will continue to be provided in each service; it takes 2013/14 budget data and applies cost drivers and efficiencies to these figures for each future year, but makes no attempt to model any future savings achieved through reductions in service. Figure 2: Total council expenditure to 2019/20 Projected Net Expenditure (billion) 2010/ / / / / / / / / /20 The projected path of future expenditure is shown in figure 2. This shows that, at current service levels, total expenditure will rise from 51.1 billion in 2013/14 to 55.7 billion, the annual rate of increase stabilising at 1.7 per cent per annum in cash terms by 2019/ Under Pressure, LGA content/56/10180/ /article 10 Future funding outlook 2014

11 We can see the effect that different assumptions have on the overall level of expenditure in Figure 3. If we assumed no increase in fees and charges, for example, this would increase expenditure in 2019/20 by 2.3 billion. Assuming no efficiency savings would increase expenditure by 6.3 billion. Altogether, assumptions on sales, fees and charges and efficiencies have reduced overall forecast expenditure in 2019/20 by 7.6 billion, or 15 per cent. This makes it clear that the scenario shown in the model is not an overly pessimistic one, and any variance that emerges as a result of real world factors is likely to widen the gap rather than help close it. Figure 3: Total council service expenditure to with different assumptions about efficiencies, fees and charges Central assumptions No increases in fees and charges No efficiencies No efficiencies or fees and charge increases / / / / / / / / / /20 Future funding outlook

12 The path of council funding By 2015/16 core funding for local government will have been reduced by 40 per cent in real terms over the course of this parliament, and further reductions are anticipated for the period of the next parliament, whichever party is in government. Our model projects the likely path of all council funding, based on a number of assumptions: Council tax: We have used actual council tax rates until 2014/15. Average increases have been below 1 per cent for each of the last four years but have risen each year. A further freeze grant for 2015/16 has already been announced. We have assumed that all councils will increase their council tax by 1.0 per cent in 2015/16, and 1.5 per cent each year thereafter. We have assumed a modest growth in the tax base. Business Rates: We have used councils individual estimates of their retained business rates for 2013/14 and 2014/15. We have assumed future business rates will grow by retail price index (RPI) plus a local area growth estimate. Grant funding: The position to 2014/15 is based on final grant allocations, and the 2015/16 position is based on the illustrative local government finance settlement. In 2016/17 we have applied a cut of 8 per cent in total Settlement Funding Assessment, and 7 per cent cuts in each year thereafter. Better Care Fund: Shared funding with the NHS for Adults Social Care is assumed to fund social care spending by 1.5 billion by Public health: We have used public health funding allocations for 2013/14 and 2014/15, and for subsequent years have assumed that the overall level of funding rises to cover costs. This funding is ring-fenced and thus its impact on the overall funding gap is neutral. Investment income: We assume that yield will rise with inflation. Most analysts predict that interest rates will increase but the effect of this on councils finances is immaterial. Transfers to and from reserves: The model assumes that each authority will draw up to 5 per cent of its total reserves each year to plug any funding gap, with the reserve level not permitted to drop below 5 per cent of total annual expenditure. If the funding level in an authority is above projected expenditure then all surplus will be added to reserves for that year. In practice individual authorities will have different strategies based on local analysis of risk and their local financial strategy. A full description of the projections and all data sources are provided in the Technical Annex, available on the LGA s website. 16 This assumes that all of the non-performance related element of the Better Care Fund is available to councils, and 50 per cent of the performance-related element. This is highly speculative and the impacts will differ in different council areas, but the data is not available at this stage. 12 Future funding outlook 2014

13 Figure 4: Total council funding to Projected Funding (billion) 2010/ / / / / / / / / /20 Figure 4 shows that total council funding falls by 7.5 billion between 2010/11 and 2019/20. However, this total includes the introduction of ring-fenced funding for transferred public health responsibilities in 2013/14 and beyond, and when this is excluded the overall fall in funding rises to 10.6 billion. Over the period, funding falls by 15 per cent in cash terms, or over 26 per cent in real terms 17. When we account for the introduction of public health funding income falls by 21 per cent in cash terms and 33 per cent in real terms. 18 Initiatives such as the Better Care Fund, which enable resources to be used innovatively and collaboratively across the public sector, will be vital in maintaining and refocusing services for the future. The figures include an assumption that the Better Care Fund will be ongoing and will reduce pressure on such care spending by 1.5 billion per annum, the same assumption we made last year. The changes in the way local government is funded can clearly be seen by comparing sources of funding in 2010/11 and 2019/20. Council Tax provides over half of all funding by the end of the decade, with the proportion of income coming from centralised grants falling over the decade as illustrated in Figure Real terms is calculated using the GDP deflator series available here: 18 These percentage reduction figures are lower than the percentage reductions in core local government funding (40 per cent over five years) because they are the reduction in total funding, the main difference being that they include council tax and therefore start from a much higher base. Future funding outlook

14 Figure 5: Composition of total local government funding 2010/11 and 2019/20 (excluding Public Health) 2010/11 18% 1% Council tax Formula grant Other grants Investment income 42% 39% 2019/20 1% 6% 2% 4% 1% 55% Council tax Retained business rates baseline Retained business rates growth Revenue Support Grant Other grants Investment income and change in reserves Additional social care funding 31% 14 Future funding outlook 2014

15 Mapping funding against expenditure We can now bring together the analysis of projected income and expenditure trends to form a picture of local authority funding overall. This shows that the overall funding gap increases by an average of 2.1 billion per year, starting at 3.4 billion in 2014/15 and reaching 12.4 billion by 2019/20. Figure 6: Income against Expenditure 2010/11 to 2019/20 60 Net Expenditure Funding (billion) / / / / / / / / / /20 In practice authorities have already closed the gap for 2014/15 in order to comply with their duty to set balanced budgets, and they have done this either through cuts, further efficiencies or use of reserves. Once full data sets are available it will be possible to say more about how they have done this and the impact on services, but our research indicates that in many authorities the well of efficiencies is running dry, and savings are starting to come from service reductions. Many authorities already have in place savings plans to close their budget gap still further in 2015/16 and beyond, but our research shows that 2015/16 is the year in which service reductions will start to account for a higher proportion of savings than efficiencies. The model provides an opportunity to test councils ability to deliver their statutory obligations within the available resource envelope. Many of the service blocks have statutory elements which may not necessarily be prescriptive but have already proven to be highly contested, such as spending on libraries and road maintenance. It is very difficult to isolate what is a statutory service and what is discretionary, but we have followed the previous model in looking just at social care and waste spending. The results of the analysis are shown in figure 7. Future funding outlook

16 Money available for all other services Adult social care Children s social care Waste management / / / / / / / / / /20 Figure 7: Social care and waste spending within the overall funding envelope With social care and waste spending absorbing a rising proportion of the resources available to councils, funding for other council services drops by 43 per cent, or 11.6 billion in cash terms by the end of the decade, from 26.6 billion in 2010/11 to 15.0 billion in 2019/20. But even this significantly understates the scale of the problem as within these other services are many statutory obligations which cannot be cut significantly: concessionary fares, minimum revenue provision, waste and transport levies, and other statutory services. 16 Future funding outlook 2014

17 The use of reserves Local authorities have no secret stockpile of reserves to allocate to close the long-term funding gap. Both the National Audit Office and the Chartered Institute of Public Finance and Accountancy have explicitly recognised that reserves strategy is very much a local decision to meet local needs, and there is no one-size-fits-all strategy which will be suitable for all councils. Uncertainties such as the unknown impact of welfare reform need to be taken into account. Delivering major structural change takes time and costs money which often needs to be met from reserves. However, for the purposes of our model, we have had to make some broad assumptions about use of reserves. We believe that, at an aggregate level at least, these assumptions are the most reasonable we can make, while accepting that they will not be correct for each council. The central assumption of the model is that councils will use up to 5 per cent of their reserves to plug any spending gaps in year, decreasing their reserves to 5 per cent of their overall annual expenditure. In practice, authorities will have their own strategies for allocating reserves based on local circumstances and their own assessment of risks. We have not analysed how much of councils reserves are earmarked for specific purposes nor what those purposes are. Many councils that have contributed to their reserves in recent years have cited uncertainty over future funding levels as the main reason for doing so. The move towards multi-year funding settlements is therefore welcome and will give local government as a whole more certainty. However the very late announcement in 2014 of the council tax referendum threshold made it very difficult for some councils to plan with any certainty. However, to counter the common criticism that councils could use their reserves 19 to support front line services, we need only consider the fact that reserves can only be used once. Much of the cash that English councils hold in reserve is earmarked for specific purposes and therefore not available to fund expenditure in general. But even in the hypothetical situation where reserves were used in their entirety to close the funding gap, reserves would be exhausted in, at best, three years. By the end of the decade (in fact by 2016/17) the funding gap would be identical to that in our model, and councils would hold no reserves and therefore be very vulnerable to unexpected events and economic shocks. 19 DCLG Statistical release: Local authority revenue expenditure and financing in England: 2012 to 2013 final outturn Future funding outlook

18 Impact on individual authorities All authorities are experiencing cuts, but there is variation in the way individual authorities are affected, due to differences in the way both funding cuts and spending pressures impact at local level. Authorities in relatively deprived areas, which are more dependent on Government grant, are the worst affected. Social care authorities have the benefit of Better Care Fund, but nevertheless have to deal with increasing spending pressures as the decade goes on. Cuts in overall funding levels are not experienced evenly across different types of authorities. The local government finance system worked by allocating more grant to authorities which are deemed to have greater need and lesser capacity to raise income locally from taxation or fees and charges. Historically, this allocated more money to authorities in relatively deprived, urban areas, and thus taking money out of the system tends to withdraw funding from these authorities at a faster rate. In two tier areas, however, District Councils will be affected by the cost implications of welfare reform which cannot currently be modelled accurately and are therefore not fully reflected in these figures. Putting together the data on expenditure and funding, it is possible to assess the distributional impact of the overall funding gap as it affects the various authority types, regions and relative levels of deprivation. But even among classes of authority there is often a large variation in the total funding gap. The charts below attempt to draw all of this together by showing the total funding level for the group (ie total income as a percentage of expenditure), as well as the maximum and minimum funding level for individual councils within that group. 20 The projected expenditure pressures also vary significantly between authorities. A large proportion of the disparity can be accounted for by the demands of social care spending within single tier and county councils, which is only partially mitigated by additional funding from the NHS. 20 The City of London has unique funding arrangements and is therefore excluded from the charts and tables below. 18 Future funding outlook 2014

19 100% Funding in 2019/20 as a percentage of expenditure 80% 60% 40% range average 20% 0% London Borough MET District English Unitary Shire County Shire District CLASS BREAKDOWN min average max London Borough 57% 74% 89% Met District 55% 71% 81% English Unitary 66% 79% 90% Shire County 73% 82% 99% Shire District 65% 94% 100% 120% Funding in 2019/20 as a percentage of expenditure 100% 80% 60% 40% 20% range average 0% East Midlands East of England London North East North West South East South West West Midlands Yorkshire and Humberside REGIONAL BREAKDOWN min average max East Midlands 66% 79% 100% East Of England 65% 83% 100% London 57% 74% 89% North East 65% 74% 80% North West 62% 75% 100% South East 71% 84% 100% South West 65% 83% 100% West Midlands 68% 76% 100% Yorkshire And Humberside 55% 73% 100% Future funding outlook

20 Funding in 2019/20 as a percentage of expenditure 120% 100% 80% 60% 40% range average 20% 0% MOST DEPRIVED (RANKS 1-50) RANKS RANKS RANKS RANKS RANKS LEAST DEPRIVED (RANKS ) INDICES OF DEPRIVATION min average max Most Deprived (Ranks 1-50) 55% 70% 99% Ranks % 75% 100% Ranks % 78% 100% Ranks % 81% 100% Ranks % 85% 100% Ranks % 84% 100% Least Deprived (Ranks ) 65% 91% 100% This analysis underlines the variance between authorities and also within classes of authorities. All authorities are experiencing cuts in funding and are having to take difficult decisions to deliver savings over the forthcoming period. The model assumes that efficiencies will continue to be delivered at a rate of 1-2 per cent per annum. Within this there are certain pressures that cannot currently be modelled and which fall disproportionately upon some of the authorities that may appear to be least affected by cuts. The impact of spending pressures does not reflect, for example, the impact of welfare reform which in two-tier areas is expected to fall mainly on District Councils. This illustrates the extent to which the local government finance system, through its complexity and lack of transparency, creates large variations in the way it funds individual authorities in ways that are not easy to explain. It makes the case again for reform of local government funding into a more transparent, more accountable, more locally responsive system. We look forward to the proposals of the Independent Commission for Local Government Finance in this regard when it reports its findings later this year. 20 Future funding outlook 2014

21 What does this mean for local services and local people? By the end of this parliament (2015): The general election is now less than a year away, and illustrative funding allocations have been announced for 2015/16, so we can say with some certainty what council funding will look like. Councils are still some way away from setting their expenditure budgets, but our research shows that 2015/16 will for many be a year in which services have to be scaled back significantly. Core funding for councils will have reduced by 40 per cent, and councils will have lost, in real terms, a total of 3.7 billion in council tax revenue through keeping council tax low, but due to council tax freeze grants being set at a level below inflation received only 1.6 billion in grant funding to compensate. 21 Local authorities will continue to close the gap as they are required to do, if not through further efficiencies then through service cuts or increases in charges. How they choose to do this is a matter for local councils themselves, but options are diminished by the need to meet statutory duties and by the local mandate in each area to deliver the political priorities of the administration, such as boosting economic growth and prosperity in their area. To help users understand how these figures might impact services and households at a local level, the companion paper to this report details the position of a typical AnyCouncil, and the services used by several AnyHouseholds in that council area. 21 As council tax levels for 2015/16 are unknown, these figures are for the four years to 2014/15 only. By the end of the next parliament (2020): This is more speculative, as much will depend on decisions of the next administration. But if the current path of funding and expenditure continues: The savings that will have been made by local government will be in the range of billion. Revenue Support Grant, councils largest single needs-based grant, will have fallen from 14.5 billion to 2.2 billion; there will be almost nothing left to cut. Revenue Support Grant will use a needs formula based on data that is seven years old. The forthcoming reset of the system will need to address the trade-off between the distribution of resources based on incentives, and distribution based on needs, and deal with any distributional consequences. Council tax, the only source of locally raised income over which councils have any meaningful control, will be based on property valuations that are nearly 30 years old. Because efficiencies will have been all but exhausted, any further reductions in funding almost inevitably result in a genuine loss of services. Last year, in its campaign for local government, Rewiring Public Services the LGA set out its broad vision for what needs to be done to address the problem. We are now less than a year from the 2015 general election, when the next national government will have an opportunity to start afresh and use its mandate to rewire public services. At this year s LGA conference we will present our proposals for what the next government can do in practical terms to achieve the goals of the Rewiring campaign and ensure that vital local services are sustainable. Future funding outlook

22 22 Future funding outlook 2014

23 Future funding outlook

24 For more information please contact: Stephen Clarke Adviser Local Government Finance Local Government Association Local Government House Smith Square London SW1P 3HZ Telephone: Local Government Association Local Government House Smith Square London SW1P 3HZ Telephone Fax Local Government Association, July 2014 For a copy in Braille, larger print or audio, please contact us on We consider requests on an individual basis. L14-340