Local Government Finance Proposals Favour Tory Councils at the Expense of the Rest

The government is planning its next change to local government funding in England, with the intention of further reducing the Revenue Support Grant (RSG) and increasing the amount of local business rates that are retained locally to 75% (currently 50%). The RSG is the amount of money that central government gives to local authorities, based on a formula that sees different areas getting different amounts of money, depending on social indicators, things like population, deprivation and so forth.

The aim in the longer term for this government is to abolish the RSG altogether and have 100% of business rates retained where they are collected, but it is debatable whether this is ever likely to happen. The problem is that business rates, although fairly constant, in a recession would impact on local finances directly, as well as more generally. But in any case, the immediate problem now is how to compensate councils for what is called ‘negative RSG.’ This means council’s that will get less money after the changes.

Something I think will need to be put in place to even out regional differences, but perhaps called something else? Given the choppy Brexit waters we sail in, this could become a big problem, especially in places that might fare worse than others. In the interim of 75% locally retained business rates, the sharing out plan looks to favour Tory governed areas, over those run by other parties.

Analysis by the Local Government Chronicle (LGC) (subscription), shows that the preferred new system will see the lion’s share of compensation payments going to rural councils, which are predominantly Tory run.

Negative RSG compensation beneficiaries by political party

Political party          Total due

Conservative            £129.8m

Labour                      £2.9m

Liberal Democrat      £12.8m

No overall control      £7m

The 10 councils which will receive most negative RSG compensation 2019-20

Surrey          £17.3m                Conservative 

Buckinghamshire £10.9m        Conservative            

Dorset              £10.1m            Conservative

Richmond upon Thames £7.5m Liberal Democrat

Cambridgeshire  £7.2m          Conservative

Wokingham           £7.1m        Conservative           

Oxfordshire     £6.2m              Conservative 

North Yorkshire £3.7m            Conservative 

West Berkshire  £3.5m           Conservative 

Cheshire East   £2.6m            Conservative

As you can see, 9 of the top 10 gaining councils under the preferred compensation scheme are Tory.

Concerns about the way negative RSG is being dealt with comes two years after the government’s transition grant controversially distributed £300m funding mostly among Conservative-led councils. Surrey was also the biggest winner under that scheme which sought to smooth the path for councils facing the steepest cuts to revenue support grant, and address concerns about delivering services in rural areas. It followed threats from Tory MPs to vote down the whole local government finance settlement.

Nottingham City Council will see RSG cut by £10m to £25m next year but does not qualify to receive any compensation funding. Deputy leader Graham Chapman (Lab) told LGC: “[The ministry’s proposal for dealing with negative RSG] is a scandalous abuse of public money under the guise of objectivity.”

In its technical consultation the Ministry for Housing, Communities and Local Government said it had “explored a number of possible options for addressing” negative RSG and found using some of the government’s share of business rates income to compensate affected councils “represents the most direct and simple solution to the problem.”

Cllr Chapman said it was “frankly outrageous that the government is once again choosing to bail out councils in better-off areas”, largely in the south, “when poorer councils in the North and Midlands, in areas with higher need, are losing out”.

This comes on top savage cuts to local government grants for the last eight years, which has led to Northamptonshire County Council becoming insolvent and preparing to cut all but statutory services. Other council’s are said to be struggling too, but the government will not change course from the austerity induced cuts to local services.

Sir Stephen Houghton (Lab), chair of the Special Interest Group of Municipal Authorities, told LGC: “If government are now minded to put additional funding into local government that should be a cause for celebration but when this is done for the benefit of the wealthy few, rather than being allocated where funding is most needed, it brings the whole system into disrepute.”

The government says its plan is the fairest and easiest way to address the result of negative RSG compensation. The technical consultation on changes to local government finance can be found here.