Policy paper

2010 to 2015 government policy: local government spending

Updated 8 May 2015

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Applies to England

• Publication for Northern Ireland
• Publication for Scotland
• Publication for Wales

This is a copy of a document that stated a policy of the 2010 to 2015 Conservative and Liberal Democrat coalition government. The previous URL of this page was https://www.gov.uk/government/policies/giving-local-authorities-more-control-over-how-they-spend-public-money-in-their-area–2. Current policies can be found at the GOV.UK policies list.

Issue

England’s local government finance system is one of the most centralised in the world. This means that local authorities don’t have the autonomy and flexibility they need to make sure public money is spent on the things that matter in their area.

The government believes that local authorities are better placed to make decisions about the needs of their local communities than central government.

Actions

Local Services Support Grant

From 2013, local councils will be able to decide how most of their grants from central government should be spent in their area. The only exceptions are schools funding and the new public health grant. The new Local Services Support Grant is a single grant paid by central government to individual councils to help support and protect local services. Councils can decide themselves how they wish to use it.

Protecting funding in areas that are most reliant on central government funding

Some areas are more dependent than others on central government funding, because they have a higher proportion of people who pay lower levels of Council Tax. The 2012 to 2013 local government finance settlement includes measures to protect those councils most reliant on central government funding.

Business rates retention

We’re introducing a new business rates retention scheme from 2013 to 2014. This will allow councils to keep a share of growth in business rates in their area and reduce their dependency on central government grant funding.

Community Budgets

Community Budgets are a new way for local public service providers to work more effectively together. Community Budgets allow providers of local services to contribute to a shared fund, so they can co-ordinate their work more effectively and efficiently.

Investment in buildings, land, vehicles and machinery

Councils need to invest in their capital assets, including buildings, land, vehicles and machinery. We will ensure that the system gives councils the resources and flexibilities to make this investment.

Localising Council Tax support

From April 2013, councils in England will design their own Council Tax support schemes.

Service Transformation Challenge Panel

We launched an independent Service Transformation Challenge Panel in May 2014. The panel will advise on what needs to happen both locally and nationally to increase the pace and scale of transformation within public services. Where there are barriers to transformation, the panel will make practical recommendations on how to address these issues.

Delivering Differently in Neighbourhoods

The Delivering Differently in Neighbourhoods programme will provide financial support and expert advice to local authorities to redesign services to be delivered at neighbourhood level with the involvement of local people and organisations. The programme will offer support worth £2 million in total to up to 25 local authorities between February 2015 and March 2016.

Background

Local government resource review

The government set up a review of local government resources in March 2011 to consider how to give local councils more control over their money. The first phase of the review considered how local authorities could promote local economic growth by allowing them to keep at least a proportion of the locally generated business rates (the tax paid by businesses to local councils). This would replace the current formula grant arrangements which are a combination of business rates, revenue support grant and police grant.

The second phase of the local government resource review looked at extending financial autonomy to communities and local people through Community Budgets.

Local government funding

Local authorities fund their activities from 3 main sources:

• grants from central government
• Council Tax
• other locally generated fees and charges for services

Central government funding for local councils is announced each year in the annual local government finance settlement. The settlement for 2013 to 2014 was announced on 4 February 2013.

We also approve applications from parish and town councils to borrow money for capital projects.

Who we’ve consulted

The Department for Communities and Local Government (DCLG) ran a consultation on proposals to localise support for Council Tax between 2 August and 14 October 2011.

We also ran a funding consultation from 17 May to 12 July 2012. The consultation paper explained how the government intends to distribute funding to support local schemes. It included proposals to adjust the way money is allocated to authorities, to make sure all authorities have what they need.

We published a consultation paper on the Council Tax base and funding for local precepting authorities. Precepting authorities are councils from other levels of local government such as a county or parish councils and other agencies.

We also consulted on our proposals for a business rates retention scheme in summer 2011. We set out our proposition for a new business rate retention scheme on 19 December 2011.

DCLG also regularly meets and consults with representatives from local councils and other organisations involved in local government.

Bills and legislation

The Local Government Finance Act gained Royal assent on 31 October 2012. It provides a legal basis for business rates retention and localising Council Tax support.

Local authorities must have regard to the ‘Prudential code for capital finance in local authorities’ when carrying out their duties:

• in England and Wales under Part 1 of the Local Government Act 2003
• in Scotland under Part 7 of the Local Government in Scotland Act 2003
• in Northern Ireland under Part 1 of the Local Government Finance Act (Northern Ireland) 2011

Localising Council Tax support

The Council Tax Reduction Schemes (Prescribed Requirements) (England) Regulations 2012 (SI 2012/2885) and The Council Tax Reduction Schemes (Default Scheme) (England) Regulations 2012 (SI 2012/2886) were made on 16 November 2012, and laid before Parliament on 22 and 23 of November 2012 respectively.

This instrument, the Council Tax Reduction Schemes (Prescribed Requirements and Default Scheme) (England) (Amendment) Regulations 2012 (SI 2012:3085) has now been laid before Parliament.

This follows through on the government’s stated intention to increase some of the allowances in the Prescribed Requirements and Default Scheme in line with the Department for Work and Pensions’ up-rating of Housing Benefit following the Autumn Statement.

The Prescribed Requirements regulations prescribe requirements for all local Council Tax reduction schemes and came into force on 27 November 2012.

Please note for Prescribed Requirements:

• Schedules 1 to 6 apply to pensioners (as defined) only
• Schedules 7 to 8 apply to all applicants (ie working age and pensioners)

The Default Scheme Regulations contain provisions about applicants in receipt of an award of universal credit, and we will be publishing a further guidance note on this approach, with worked examples.

For more information go to the supporting page, Localising Council Tax support.

Who we’re working with

The Local Government Group runs the Community Budgets website, which includes news, resources and weekly updates.

Appendix 1: Community Budgets

This was a supporting detail page of the main policy document.

Community Budgets are a new way for local public service providers to work together to meet local needs. Community Budgets allow providers of public services to share budgets, improving outcomes for local people and reducing duplication and waste.

Community Budgets can help organisations that provide local public services to:

• make better use of their resources by establishing joint budgets and sharing local knowledge, community assets and voluntary effort
• remove central rules and regulations so local professionals can provide better services that suit their area
• give people greater control over their local public services
• establish local partnership and governance arrangements to create a unified approach for a given area

Sixteen first-phase Community Budgets for families with multiple problems were announced in April 2011 as part of the effort to help turn round the lives of at least 10,000 families over 4 years.

Following consultation, 2 further types of budget pilots were announced on 21 December 2011:

• whole-place Community Budgets will test how to bring together all funding for local public services in an area to design better services and achieve better outcomes
• the Our Place! programme (formerly ‘neighbourhood community budgets’) gives communities the opportunity to take control of dealing with local issues in their area.

Appendix 2: parish and town council borrowing approval

This was a supporting detail page of the main policy document.

Local council borrowing is governed by schedule 1 to the Local Government Act 2003. Parish and town councils in England have to apply and receive approval from the Secretary of State for Communities and Local Government before taking up any borrowing. Certain temporary borrowings do not require borrowing approval.

Borrowing for capital projects

Councils can borrow for capital expenditure as defined in section 16 of the Local Government Act 2003.

Borrowing limit

There is no national limit on the total annual amount of borrowing available to local councils in England. However, the amount that an individual council will be allowed to borrow is normally limited to £500,000 in any one financial year.

How councils apply

Councils apply using an application form, available from the county associations affiliated to the National Association of Local Councils (NALC).

The decision to borrow must be taken by the full council, and the date of the decision recorded on the application form.

When completed and signed, the original application form should be sent to the local county association who will check the details and forward it to the Department for Communities and Local Government (DCLG).

Application decision

The formal decision on each application rests solely with the secretary of state. If the application is agreed, DCLG will send the council a borrowing approval letter. If the application is not agreed, we will tell the council why.

The borrowing approval will set out a number of conditions that need to be fulfilled. It will specify how much the council can borrow, and the maximum term of the loan period (either 50 or 10 years).

Approvals are valid for 12 months from the date of issue. Councils can ask for this time limit to be extended.

Who lends the money

Councils may borrow from any willing lender. In practice, most councils borrow from the Public Works Loan Board (PWLB) or from a bank. The PWLB will need to see the original borrowing approval before processing any application.

If councils’ circumstances change

Councils must tell DCLG if their circumstances change after they have got approval for borrowing, for example if:

• they no longer need to borrow
• they need to delay the borrowing because their project has been delayed

Further information

A guidance leaflet setting out the details of the borrowing approval system, including the criteria under which applications are assessed, is available from the county associations affiliated to NALC.

If county association details are not readily available, councils should contact NALC on 020 7637 1865.

Appendix 3: business rates retention

This was a supporting detail page of the main policy document.

A business rates retention scheme was introduced in April 2013. It will provide a direct link between business rates growth and the amount of money councils have to spend on local people and local services. Councils will be able to keep a proportion of the business rates revenue as well as growth on the revenue that is generated in their area. This will provide a strong financial incentive for councils to promote economic growth. Business rates retention is at the heart of the government’s reform agenda and will help achieve 2 priorities: economic growth and localism.

At the beginning of the scheme, the government will carry out calculations to ensure that councils with more business rates than their current spending will make a tariff payment to government. Similarly, where councils have greater needs than their business rates income, they will receive a top-up payment from the government. The total sums of these payments will equal each other.

The levels of tariff and top-up payments will remain fixed each year, but will increase in line with the Retail Price Index.

They will not change until the system is reset. The government has said that this will not occur before 2020 at the earliest. This will provide councils with the certainty they need to plan and budget.

In addition, safety net payments will be available if a council’s business rates income falls by a certain amount. This will provide support if, for example, a major local employer closes.

This safety net will be funded by a levy paid by those councils whose business rates revenue increases by a disproportionate amount compared to their needs. The levy is designed to ensure that the more councils grow their business rates, the more they benefit.

Map of local authority spending power per dwelling 2013 to 2014

Appendix 4: localising Council Tax support

This was a supporting detail page of the main policy document.

We’ve introduced new rules which allow councils in England to design their own Council Tax support schemes. The Local Government Finance Act which gained Royal assent in October 2012, allows local councils in England to design their own schemes from April 2013.

The new law protects vulnerable pensioners and the changes should provide incentives for people to find and stay in work.

The Department for Communities and Local Government has provided information and guidance to support local authorities to develop their own schemes.

Council Tax reduction schemes regulations

The Council Tax Reduction Schemes (Prescribed Requirements) (England) Regulations 2012 (SI 2012/2885) and The Council Tax Reduction Schemes (Default Scheme) (England) Regulations 2012 (SI 2012/2886) were made on 16 November 2012, and laid before Parliament on 22 and 23 of November 2012 respectively.

This instrument, the Council Tax Reduction Schemes (Prescribed Requirements and Default Scheme) (England) (Amendment) Regulations 2012 (SI 2012:3085) has now been laid before Parliament.

This follows through on the government’s stated intention to increase some of the allowances in the Prescribed Requirements and Default Scheme in line with the Department for Work and Pensions’ up-rating of Housing Benefit following the Autumn Statement.

The Prescribed Requirements regulations prescribe requirements for all local Council Tax reduction schemes and came into force on 27 November 2012.

Please note for Prescribed Requirements:

• Schedules 1 to 6 apply to pensioners (as defined) only
• Schedules 7 to 8 apply to all applicants (ie working age and pensioners)

The Default Scheme Regulations, which prescribe the default Council Tax reduction scheme which will apply to any council which has not made its on scheme came into force on 18 December 2012.

Publications

We have run the following consultations:

• Localising support for Council Tax: Council Tax base
• Localising support for Council Tax: funding arrangements
• Localising support for Council Tax

For further information see Localising Council Tax support publications.

If you have any queries email LCTS-reform@communities.gsi.gov.uk

Actual allocations of the transition grant for Council Tax reduction schemes can be found on the localising support for Council Tax: transitional grant scheme page.

Appendix 5: investment in local government capital assets

This was a supporting detail page of the main policy document.

Councils need to invest in their buildings and equipment so that people can continue to receive high-quality local services. We will ensure that the system gives councils the resources and flexibilities to make this investment.

Local authorities receive central government funding for a major part of their capital investment in the form of capital grants. They can also use income from their own capital assets to finance capital spending.

The new Prudential system encourages local authorities to invest in the capital assets that they need to improve their services. It allows them to raise finance for capital expenditure without government consent as long as they can afford to service the debt out of their revenue resources.

Local authorities must have regard to the ‘Prudential code for capital finance in local authorities’ when setting and reviewing their affordable borrowing limit.

The following guidance documents on capital finance are also available:

Capital finance: guidance on local government investments (second edition) Capital finance: guidance on minimum revenue provision (third edition)

Appendix 6: Local Services Support Grant

This was a supporting detail page of the main policy document.

Local Services Support Grant is a single grant allocated by central government directly to local authorities to help support and protect local services however they choose to. It draws together a small number of sources of funding for local services that are not funded through formula grant. For 2014 to 2015, this money is formed by grant from:

• Department for Environment, Food and Rural Affairs (Defra)
• Department for Education (DfE)

The funding is not ring-fenced for specific services, so councils can decide how they wish to use it.

Funding allocations

Funding for 2014 to 2015 was confirmed in April 2014, with the inclusion of the DfE Extended Rights to Free Travel Grant, as well as Defra payments for Inshore Fisheries Conservations and Lead Local Flood Authorities.

You can view the grant determinations detailing individual allocations on this site.

How the grant is paid

Local Services Support Grant is paid and administered by DCLG through its LOGASnet system in 12 monthly payments. For 2014 to 2015, these will be made on the 15th day of each month, or the next working day if the 15th falls on a weekend or public holiday. A single monthly payment reduces the number of transactions between central and local government and ensures a stable flow of income.

Appendix 7: Delivering Differently in Neighbourhoods

This was a supporting detail page of the main policy document.

The Delivering Differently in Neighbourhoods programme will provide financial support and expert advice to local authorities to redesign services to be delivered at neighbourhood level with the involvement of local people and organisations. The programme will offer support worth £2 million in total to up to 25 local authorities between February 2015 and March 2016.

The government is supporting councils to transform public services in order to meet the challenges of reduced public expenditure and increasing demand and provide modern services that are affordable, efficient and meet the needs and expectations of service users.

We are working with neighbourhood organisations, parishes and the voluntary sector to help them to play a greater role in service design through projects such as Our Place that seek to design public services from the bottom up, based around the needs and priorities of communities.

We are also supporting local authorities to assess and implement alternative delivery models through the current Delivering Differently for Local Authorities programme. We want to build on the progress made in these programmes and continue to develop our understanding of effective neighbourhood delivery models through the Delivering Differently in Neighbourhoods programme.

The prospectus contains details of the programme, application process and assessment criteria.

We are inviting local authorities to send expressions of interest to DDneighbourhoods@communities.gsi.gov.uk by 15 December 2014.