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.

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.