Clark confirms 4-year settlement for town halls

Greg Clark has confirmed a "historic" four-year financial settlement for local government.

The communities secretary said the agreement "transforms the relationship between central and local government" through the phasing out of the revenue support grant and councils moving to being entirely financed by business rates, council tax and other local revenues by the end of the decade.

At the start of 2010, almost 80 per cent of council expenditure was financed by central government grant, he said. By next year, the revenue support grant will account for just 16 per cent of spending power.

Clark announced £300m of transitional funding to help town halls reduce their reliance on central government. Councils with the sharpest grant reductions will receive £150m a year in the first two years of the settlement to ease the pace of funding reductions, in line with recommendations from the County Councils Network and the Local Government Association.

He also confirmed an extra £3.5bn for adult social care by 2019-20. This comprises an extra £1.5bn a year for the Better Care Fund and the two per cent social care precept for council tax, which is expect to raise £2bn.

Elsewhere, the rural services delivery grant will increase from £15.5m this year to £20m in 2016-17 and £65m by 2019-20. This is in addition to the transition grant funding and, taken together, makes an extra £93.2m available to rural councils in 2016-17.

In addition, Clark announced a Government of the needs assessment formula to reflect the fact that council spending will be financed by local government and not central grants.

"These are important times for local government. The devolution of power and resources from Whitehall is gathering momentum," Clark said.

"Today's settlement means every council will have, for the financial year ahead, at least the resources allocated by the provisional settlement. In addition, we will provide transitional funding for the first two years of the Spending Review period for councils as they move from dependence on central government grants to greater financial autonomy.

"The Government will continue to keep bills down, with council tax still expected to be lower in real terms in 2019-2020 than it was in 2009-2010."

Responding to the settlement, Lord Porter, chairman of the LGA, said: "The LGA has been working hard with the Government on behalf of all councils - both publicly and privately - to highlight the financial challenges they face over the next few years. We are pleased it has listened to our fundamental call for new money to be found to smooth out funding reductions for some councils in 2016-17 and beyond without any other councils losing out further as a result.

"Extra funding of up to £416m, which includes an extra £93m for rural authorities, announced today will go towards easing the financial pressure on those local authorities who were adversely affected by the method of allocating funding and will ensure that no council will move into a negative grant funding position within the next three years. Allowing all local authorities - not just the 51 districts with the lowest council tax bases - to raise their Band D council tax by £5 will also help some councils mitigate some of the additional funding pressures they face in 2016-17 and beyond.

"Funding reductions will still be challenging for councils over the next four years. Any extra cost pressures, such as those arising from rising demand or policies such as the National Living Wage, will have to be funded by councils finding savings from elsewhere. Many will have to make significant reductions to local services to plug funding gaps and will be asking residents to pay more council tax while possibly offering fewer services in return as a result.

"The move to full business rate retention is the most ambitious reform to local government finance of the last few decades. While it won't solve the long-term funding challenges facing councils, it is absolutely critical to ensure any new system works effectively. We look forward to working closely with the Government on ensuring it is implemented and distributed in a way which maximises the potential it offers to our local communities and businesses."