Poorest councils have seen 3 times the cuts as richest say SIGOMA

Posted on April 26, 2023

The top 10 per cent of England’s most deprived council authorities have seen a cut almost 3 times as high as the richest 10 percent of councils.

Research by SIGOMA, the Special Interest Group of Municipal Authorities, reveals that on average the top 10 per cent of poorest councils in England have received a 28.3 per cent cut in the last 13 years (2010/11 and 2023/24).

Meanwhile, the top richest 10 per cent of councils have received a 10.1 per cent cut on average during the same period.

Government funding represented over 55 per cent per cent of council’s core spending power in 2013-14 but now represents just 37 per cent per cent in 2023-24.

At the same time, the percentage of council funding from local revenue - such as council tax - has increased to over 62 per cent in 2023 as they try to plug the funding gap, an increase of almost 18 per cent since 2013 (when it was 45 per cent of funding).

Government have been inexorably lowering the amount of funding for local government. In 2013-14, they paid some £4.9 billion more in grant than councils handed over in business rates. By 2023 the overall fall in funding meant councils will receive £4.5 billion less than will be raised from business rates, a reversal of some £9.4 billion.

The switch from direct grant to local taxes means the reduction has lower impact on the wealthiest areas, who rely less on grant funding and can raise more from council tax, business rates and other growth based local funding sources.

Chair of SIGOMA, the Special Interest Group of Municipal Authorities, Cllr Sir Stephen Houghton, said the structures that support a fair distribution of funds raised through taxation have been replaced by ones that tend to reward high value housing stock and a large and thriving business rate base.

This has resulted in increased disparity between the wealthiest areas of England who rely less on grant funding and can raise more from council tax, business rates and other local funding sources.

The business rate retention system was first introduced in April 2013. It allows councils to retain up to half of the revenue raised from business rates in their local area, with the remainder retained centrally by the Government and used to provide grant funding for local authorities. However, retained business rates growth is not counted as a core spending power, and instead allocated on a growth-based formula and not needs-based.

Cllr Sir Stephen Houghton added that the current policy has been a failure and directly hurts council funding pots. Meanwhile, the planned review of the system, originally scheduled for 2020, has now been delayed until 2025 and is directly contributing to further disparity between regions and damaging the plan to help level up the country.

He added: “Failure to reset business rates growth has unfairly disadvantaged the poorest councils over the last three years. The system needs serious reform. Reversing the trends will not happen overnight and we need to introduce a new model that reforms local Government finance to create a fairer funding system.”

“The poorest areas have seen the biggest cuts and for “levelling up” to mean anything the Government should be looking to reverse these cuts and create a funding formula that funding according to council needs.”

As part of their soon to be released Manifesto, SIGOMA has put forward a new model that provides five steps to creating a fairer funding system for councils:

Step 1:

The Government must publish data showing all un-ringfenced council revenue funding, including business rate growth, so that councils and the public have a clear idea of how much revenue funding is available at council level. This can be done now and should cover recent history.

Step 2: Create a revenue funding model:

The switch from incentive funding to needs funding must begin at the first available opportunity and be maintained. Retained business rates growth should diminish as a new needs formula is introduced and we would expect a transition fund would be introduced for those worst affected to provide a soft landing to their new needs share.

Step 3: A full or partial re-set of business rates to allocate more funding according to needs. This is redistributive and would be revenue neutral to help provide councils with equal funding opportunities.

Step 4: The existing needs formula should be populated with more up-to-date data, again neutral to the overall Budget, giving a more up to date reflection and understanding of relative needs.

Step 5: The Government should increase the proportions of rate income distributed as funding back up to the level of 100%, in 24-25 this would begin with the additional social care grant already planned in the Budget announcement.

1 Methodology - The 10/11 figures have been inflated each year using the GDP deflator to a theoretical 2023/24 figure, adjusted for changes in the composition of CSP over the years. The cut % is the difference between actual core spending power and this theoretical number (which represents what would have happened if spending was matched to inflation). All upper tier. County cut data is a combined district/county figure. City of London is excluded as an outlier.

Read coverage of our analysis in LocalGov News, Local Government Chronicle, Room 151, Public Finance, The Yorkshire Post and the Liverpool Echo.