Finance bulletin 

Welcome to February’s finance bulletin.

Following the publication of the final local government finance settlement on 6 February, we produced a Parliamentary briefing note for MPs for their debate on the settlement. The final settlement included an extra £166 million for local government, in addition to the £24 million added in the provisional settlement in December (£15 million for Rural Services Delivery Grant and £9 million for New Homes Bonus). The Government estimates that the core spending power of English local authorities will increase by 1.9 per cent in 2018/19 - assuming councils raise council tax by the maximum allowed under the referendum limits. The additional funding from central government is welcome but councils still face a funding gap that will exceed £5 billion in 2019/20, as well as a £1.3 billion pressure to stabilise the adult social care provider market today.

We produced analysis of the impact of the additional council tax income allowed in the settlement. This shows that the extra income will be outweighed by the pressures faced by councils.

We will continue to make this case as attention is now turning to the Chancellor’s Spring Statement on 13 March. We continue to keep up the pressure on the need to provide councils with sustainable funding.

The Communities and Local Government Parliamentary select committee has been conducting an inquiry into business rates retention. This inquiry focuses on the impact of the delay in the implementation of further business rates retention and the Fair Funding Review on councils’ financial planning. Senior figures from the sector gave evidence to the committee on 5 February, including the LGA’s Vice Chairman, Cllr David Simmonds. Witnesses were unanimous about the increasing financial pressures facing councils, with funding gaps facing adult social care and children’s services being particularly acute. The LGA is urging the Government to use further business rates retention as an opportunity to address these pressures, by devolving the central share without new responsibilities. On the Fair Funding Review, the LGA’s view is that while it is important to have a fair system of distribution, the review must be implemented alongside greater overall funding for local government. We are developing our own response to the consultation.

Also in February, MHCLG published updated statutory guidance on capital finance (on local government investments and on minimum revenue provision). The new guidance on Minimum Revenue Provision (MRP) will apply from 1 April 2019 rather than April 2018 as consulted on. This is an important concession as the earlier implementation would have caused problems for councils. There are some other minor improvements in that councils will have the flexibility to decide the best way to present their Investment Strategy, and will also be able to decide which financial indicators are most appropriate to assess total risk exposure. We have produced a short briefing note to help councils understand the main changes. Under the new guidance councils cannot borrow to fund any investments, including property investments, that it makes solely to make a financial return, although it should be noted that councils need to “have regard” to the statutory guidance, and to the other parts of the prudential framework for capital finance (the Cipfa Prudential code and Cipfa Treasury Management code). If councils then choose not to follow the guidance they will need to justify this.