Today’s highly anticipated spending review comes in one of the most volatile periods of modern British history. Chancellor Rishi Sunak’s announcements follow a year of pandemic-induced support packages that have been unable to prevent increased financial fragility within local government. For local authorities, today’s review proved to be helpful in some areas, while lacking clarity and quantum in others.
First, headline statements read that local authorities will receive a 4.5% increase in spending power over the next year. It’s important to remember that spending power measures the overall revenue funding available. This cannot be divorced from council tax. As a result, very difficult decisions will have to be made on council tax increases. Local authorities will have new flexibilities to raise additional revenue, both through the adult social care precept and council tax. However, the referendum threshold for increases in council tax will remain at 2% in 2021/22.
While greater spending power is beneficial and support is welcome, it’s far from what’s needed to restore and rehabilitate councils’ budgets – especially when you consider the unprecedented amount of lingering economic uncertainty and additional demand costs, not to mention the higher costs from the rise to the national minimum wage.
In order to provide some stability to the sector, the government has decided not to proceed with a reset of business rates baselines in 2021/22 and will maintain the existing 100% business rates pilots for a further year. Government has also decided to freeze the business rates multiplier in 2021/22, saving businesses in England an estimated £575m over the next five years. While not an unexpected move, it further weakens the arguments for business rate reform. Reform did, however, receive a brief mention in the spending review report with government confirming that full and final conclusions of the review will be published in spring 2021. At least local authorities will receive full compensation for this decision.
Further, as part of the government’s commitment to the levelling up agenda, the chancellor has announced a new £4bn Levelling Up Fund. Designed to fund local infrastructure across the nations of the UK, local areas will be able to apply directly for funding for community projects.
What remains to be seen is how the levelling up agenda will be implemented. ‘Local areas’ have yet to be defined by HM Treasury, and according to today’s announcement, all projects must command local support and be approved by the community’s respective MP. The specifics have yet to be released and the devil will surely be in the detail. It’s an important development, and every effort must be made to ensure this initiative achieves its intended goals, resulting in less regional inequality in the years to come.
The fund is also supported by a new UK infrastructure bank, to be headquartered in the north of England, which will effectively serve the role that the European Investment Bank held previously – an important announcement amid a looming end to the Brexit transition period.
CFOs in local government for the most part will not have been surprised by the contents of today’s spending review. Other than a degree of certainty around financial planning, the Chancellor’s announcements have not provided answers around longer term stability. The economic environment in which today’s spending review was conducted is more volatile than any other we’ve seen in recent history. As with any short-term fiscal settlement, follow-up support will undoubtedly be needed in the coming months to put local government on a sustainable post-pandemic path forward.
This article first appeared in the Local Government Chronicle.
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