Levelling up: Government cuts £320m from council funding for 2022 in England

The Government is facing questions about how councils are supposed to deliver on its levelling up ambitions by 2030 - without any new funding

Core government funding for local councils in England has been cut by almost £320 million, NationalWorld can exclusively reveal – in the week after the Government unveiled its long awaited plan for levelling up.

The analysis comes amid calls for more funding for local authorities, who will play a major role in delivering on many of the Government’s levelling up ambitions.

Think tank IPPR North says ministers have failed to acknowledge the savage cuts councils have endured under austerity, adding it must “put its money where its mouth is” if it is serious about closing gaps in living standards and economic opportunities across the UK.

Last Monday (7 February) the Department for Levelling Up, Housing and Communities (DLUHC) published the final allocations of government funding to councils for the year ahead.

This shows councils and combined authorities will receive £14.38 billion in core funding for the 2022/23 financial year, up from £14.31 billion the year before.

But analysis by NationalWorld has found this amounts to a cut of 2.2% in real terms, when inflation is taken into account, with £320 million less for the year ahead compared to the last. Cuts range from 1% to 2.6% depending on the council.

The Greater London Authority is the only council or combined authority to see an increase, at 0.2%.

NationalWorld’s calculations were made following a methodology used by the House of Commons Library to adjust for inflation, when monitoring government spending. It is based on inflation forecasts for 2022/23 from the Office for Budget Responsibility.

How are councils funded?

There are three main sources of funding for councils - government grants, business rates (paid locally but sent to central government to be dished back out again) and council tax.

The £14.38 billion quoted is what is known as the ‘financial settlement assessment’.

It is the main pot of non ring-fenced funding for councils to spend on whatever services they want. It is made up of business rates and a grant called the Revenue Support Grant.

The Government does provide other funding for councils through specific grants, which are not included in the settlement assessment. These may be targeted for specific areas, such as the social care sector.

This year that includes a one-off £798.5 million ‘services grant’ for councils and combined authorities, which will in part help them shoulder the costs of increased employer National Insurance contributions.

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The future of some of these non-core specific grants is uncertain, which can make it difficult for councils to plan long-term budgets.

Overall, councils will receive £21.8 billion from the Government for 2022-23, a real terms increase from £20.1 billion the year before (in 2022-23 prices).

The Department for Levelling Up, Housing and Communities pointed to this increase, saying it showed they are giving councils “the resources they need to maintain and improve their services”.

When council tax is taken into account alongside specific grants and the settlement assessment, the government figures show a projected 4.6% increase in council resources for 2022/23 – what the Government calls ‘spending power’ – from £50.3 billion to £52.6 billion.

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The lion’s share of spending power comes from council tax, with the Government projecting that councils and combined authorities can expect to raise £30.8 billion from residents next year.

But when making the calculations, the Government assumes councils will put up council tax in April by the maximum amount they are allowed to without holding a referendum – during a cost of living crisis.

If councils do not do this, the increase in council tax will be less.

The Local Government Association (LGA)  says this leaves councils facing a tough choice about whether to raise the “desperately-needed funding at a time when they are acutely aware of the significant burden that could place on some households”.

How are councils going to level up?

Councils have responsibility in many areas relevant to the Government’s levelling up ambitions, including adult education, public health, and housing.

Jonathan Webb, senior research fellow at IPPR North, said the long awaited white paper on levelling up was “asking local government to achieve very ambitious things with zero new resources and actually less resources in real terms than they would have had in 2010”.

The Levelling Up White Paper, published earlier this month, did not contain any new money, nor make any mention of council finances.

The Department for Levelling up, Housing and Communities did not respond to a request for comment about council finances and levelling up.

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The County Councils Network says its members will “have a major role in levelling up the country”. While it welcomed the paper’s proposals for devolution for county councils, and the long-term investment that will bring for some, it said local authorities will require more funding.

“County Council Network’s councils are still experiencing substantial pressures in delivering social care services, whilst demand for special educational needs grows each year,” a spokesman said.

“With a large proportion of their budgets being devoted to these services and underfunded reforms to social care to be implemented, local authorities will require additional funding to achieve their levelling up ambitions and deliver these reforms successfully.”

The Local Government Association said councils and combined authorities “have a critical role to play in achieving what has been set out in the Government’s White Paper”.

Councillor Shaun Davies, chair of the LGA’s resources board, said: “Levelling up is at the heart of what councils and combined authorities want for their communities.

“Tackling the stark inequalities exposed by the pandemic and supporting people with the rising cost of living is also vital to levelling up.

“Councils want to work with the new Levelling Up Advisory Council and government on the joined-up, sustainable funding settlement needed to empower councils across the country in support of these overall aims.

“This includes the urgent need for clarity from the Government on which local government funding reforms will happen and when.”

A DLUHC spokesperson said : “We are giving councils the resources they need to maintain and improve their services, with an additional £3.7 billion being made available for 2022/23 - an increase of over 4.5% increase in real terms.

“This settlement includes a one-off grant worth £822 million, which councils can spend as they see fit, recognising that they are best placed to deal with local issues.”

The Department’s figures include funding for fire and rescue authorities.

Methodology

There are 28 councils participating in a pilot scheme for increased business rate retention. These councils agree to give up some other revenue funding from the Government, in favour of retaining more business rates.

The Government publishes two sets of figures on the settlement funding assessment – what these councils would have got if they were not participating in the scheme, and what they are actually getting as a participant in the scheme.

The calculations in this article are based on the figures showing what these councils would have got if they were not in the scheme, as these are consistent with the settlement funding figures that are published in the spending power dataset. It is also consistent with the methodology used by the House of Commons Library in monitoring local authority financing.

If the adjusted figures were used, the real terms drop in the settlement funding would be 2.1%, rather than 2.2%.

Fire and rescue authorities have been excluded from the calculations.

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