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Local Government Finance in England 2009-10

Date of statement	26 November 2008
Type	Oral

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With permission, Mr Speaker, I should like to make a statement on finance for English local authorities in 2009-10.

The three year settlement

Last year, I announced the first ever three-year settlement - giving greater certainty, flexibility and equity in funding for local authorities.

Today, I am confirming the second year 2009/10 of this settlement, for formal consultation, and the indicative allocations for 2010/11. My hon friend the Police minister is doing the same for police authorities. In both years the formula - or core - grant figures are the same as we set out before this House in January 2008.

Alongside this, I am publishing second and third year figures for 70 grants from 9 departments, 43 of which will be paid each month through the single area based grant with no strings attached.

And let me be clear - in line with the Government's policy on three-year settlements, it is not intended that the 2010/11 formula grant proposals will be changed from those published today.

Formula Grant - which includes Revenue Support Grant, redistributed business rates and Police grant - will total £28.3 billion in 2009-10 and £29 billion in 2010-11, increases of 2.8 per cent and 2.6 per cent respectively.

We will also continue with the same grant floors, so every authority will receive a formula grant increase in every year of this three-year settlement.

In total, Government revenue funding for local authority services will be £73.1 billion in 2009/10 and £76.4 billion in 2010/11; overall grant increases of 4.2 per cent and 4.4 per cent, in line with the figures we published last year.

This means with a Labour Government, councils have had above inflation increases every year since 1997, and now an extra £8.9 billion through this current three-year settlement.

In spite of significant pressures on the public finances, this confirms the Government's continuing commitment to local government and continuing investment in the local services people need.

Indeed, in the face of an expected recession, this commitment is even more important.

I know there are pressures on local government - costs, demand for services and revenue streams are all affected by the economic downturn, just as they are for central government.

Our three year commitment on the core grant and three year figures for specific grants, help councils take tough longer term decisions on their budgets.

Our mainstreaming an extra £5.7 billion of grants and the removal of other ring fencing, help councils manage their finances.

And our delivery of a single set of 189 performance indicators, together with Local Area Agreements, help councils set their priorities for their area.

Local government restructuring

Included in the grant figures are allocations for the nine new unitary authorities that start in April 2009. And I have laid before the House today regulations to ensure these new councils have the powers they need to set their budget and council tax for 2009-10.

I am also today launching a consultation on Alternative Notional Amounts which will enable like-for-like comparisons to be made on the budget requirements for these new unitary councils in the event that the Government decides to use our capping powers.

Efficiency

Last year I explained to the House that we expect of local government the same 3 per cent annual efficiency improvements as the rest of the public sector.
Delivering this means the equivalent of £89 in Council Tax for the average Band D home this year.

Delivering this means councils have an extra £4.9 billion to spend over three years in improving services or to control council tax pressures.

The public has a right to expect better value for money, from both local and national government. And at this time, people expect councils to tighten their belts like everyone else.

So today, I am publishing figures on the new efficiency savings councils expect make during 2008-09.

At just over £1 billion it is similar to what councils have achieved in the past, but it is not good enough now. Councils need to be finding more than £1.5 billion new savings every year.

The efficiency figures I am publishing also show how each council is measuring up to its own efficiency challenge.

So to ensure local residents have easy information about their council's efficiency performance and to encourage them to challenge their council to do better, I have decided - following consultation - that councils will be required to set out standard efficiency figures on council tax bills from next year.

The introduction of a three-year settlement, reduction in ring-fenced grants, local area agreements (LAAs) and the new local performance framework offer substantial opportunities for better working and efficiencies across local services in local areas - in order to manage pressures on council tax bills -including in each of the areas under examination by the five workstrands of the Operational Efficiency Programme set out in the Pre-Budget Report.

For the future, we will therefore build on this to see ahead of the next Spending Review how local authorities and their partners can prepare for the tough challenges they - like all the public sector - will face from 2011/12 onwards.

Icelandic banks

Mr Speaker, turning to Icelandic Banks. Authorities are very uncertain about how much they will recover as they prepare their budgets so soon after the failure of these banks.

I therefore propose - exceptionally - to make a regulation which will mean they need not make provision in their 2009/10 budgets for any possible loss on these investments. This will give them time to adjust their medium term financial plans and be clearer about recovering their money before making decisions which affect their budgets or council tax.

We are writing to all authorities today and will issue a draft regulation for consultation very shortly.

Council Tax

Last year, I made clear that the Government expected the average council tax increase in 2008/09 to be substantially below 5 per cent. The actual increase was 3.9 per cent - the lowest increase for 14 years and the second lowest ever.

We also kept our promise to deal with excessive increases by taking capping action against eight authorities.

In continuing this, we are today designating the police authorities of Cheshire, Leicestershire and Warwickshire - and proposing maximum budget requirements which limit their council tax increases to around 3 per cent in 2009/10.

For 2009/10 the Government again expects the average council tax increase in England to be substantially below 5 per cent.

And again, we will not hesitate to use our capping power as necessary to protect council tax payers from excessive increases.

Conclusion

In conclusion, Mr Speaker, I am confirming the second year of this three-year finance settlement.

I recognise that it is tight. But it is fair, it is affordable and it continues our increasing investment in council services.

And to help during these tough economic times, our settlement also maintains the certainty, flexibility and equity that local government says it wants from central government.

We know councils are capable of innovating, managing change and improving efficiency.

The challenge on all these fronts is set to become still greater, and councils now need to demonstrate that they are equal to the task ahead.

I commend this statement to the House.