Local government finance settlement 2018/19: does more fiscal autonomy lead to sustainable public finances?


by Rob Whiteman, CIPFA Chief Executive

Shortly before Christmas 2017, while many of us were already shunting along on the motorway, the government published its provisional local government finance settlement for 2018/19. And while this still needs to go through the House of Commons, the settlement echoes one of the themes of the chancellor’s Autumn Budget, that of allowing councils greater financial freedoms. 

An increase in business rates retention from 50% to 75% by 2020/21 and allowing local authorities an additional 1% on their core band D council tax in 2018/19 are positive steps towards greater fiscal devolution. 

However, the additional funds will first need to offset the current financial pressures the sector faces this year and questions remain, especially for those councils with lower economic growth potential.

Furthermore, the earlier than expected move to business rates rising in line with CPI rather than RPI, announced by the chancellor in November 2017, will adversely affect the income councils can generate. 

Some districts will be pleased that there was no proposed change in the New Homes Bonus. The stability will provide security for those authorities that have based their growth strategies on the New Homes Bonus, but it will not be welcomed by councils in areas of lower residential development where the financial benefit is less.

Looking at the broader picture, over the coming months and years, councils face further reductions to Revenue Support Grant (RSG), structural changes from devolution, reorganisation and boundary changes and more reform in service delivery. There is also welfare reform and social care integration, continued accounting for living wage increases that came into force in 2017, along with further accounting changes on infrastructure assets and earlier closedown. And this is all before even mentioning the growing cost pressures of social care. 

A reminder in the Budget that the long-awaited Green Paper on social care will appear in summer 2018 was not accompanied by any promise of additional funds, however this week’s reshuffle announcement that health and social care will be considered as one departmental responsibility will hopefully help to address the underlying barriers to more effective integration.

Still, as authorities set their budgets, councils remain in a most precarious position and many face the very real risk of unbalanced budgets, possible Section 114 notices, the threat of intervention and reputational risk both at the authority level and for the individual responsible officers.

It is encouraging to hear that the Fair Funding Review is progressing and that active moves to further devolution seem to be back on the table. Nevertheless, it is more important than ever that CFOs have in place robust medium term financial plans that take into account the degrees of uncertainty they face.

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