Last week, the Government announced the final details of how much funding local councils in England will be getting for the next four years.
The system for funding local councils is notoriously complex. They get their income from two main sources - money that the Government gives them and money that they raise themselves. When the coalition government came to power in 2010, 80% of local government funding came from by central government, though this percentage varied from council to council*. Since then, it has fallen and will continue to do so until by 2020 95% of local government spending will be raised locally.
Why is the government doing this? Well, first it believes that it is better for councils to raise what they spend locally because it will make them both more accountable and less dependent on central government. And second, it is having to reduce its spending in order to eliminate the deficit and with local government spending accounting for about a quarter of total government spending it has no choice but to make some cuts to the funding it gives to local councils.
So if the government used to provide 80% of council funding and it is cutting that to 5%, does that mean councils are having to cut their spending by 75%? No, because the government is allowing councils to keep the money they collect from business in the form of rates (which until now they have had to pass on to central government) and also because it is allowing councils to increase Council Tax by an extra 2% as long as they spend this money on improving social care. To assess the impact of what the government is doing on Croydon Council, you need to look not at the change in the grant the council gets from the government, but at the change in the council’s core spending power - the combination of income from government grant, business rates and Council Tax.
In the current financial year, Croydon’s core spending power is £275 million (to the nearest £million as all the figures that follow are). Next year, that will be cut to £269 million and in 2017/18 to £266 million, then in 2018/19 it will rise to £267 million and in 2019/20 to £274 million. Put simply, in four years' time the government expects Croydon Council to be spending 99.6% of what it is currently spending. If the council increases Council Tax by more than the government expects, it could actually be spending more. Now these are cash figures so they don’t take account of inflation, although that is very low at the moment, or population growth - Croydon Council is going to have to make some savings. However, there should be no need for cuts to frontline services. In essence, the council is being asked to do what millions of us had to do in the years after the 2008/9 financial crisis - get by without any extra money for a few years.
Of course, the complexity of the system leaves plenty of room for misleading claims of the type regular readers of this blog will have come to expect from the MP for Croydon North Steve Reed. On Saturday, he tweeted that I voted for:
“£44 million cuts for Croydon by a £24 million boost for leafy Surrey”.
This is misleading in several regards. First, it implies Croydon is going to have to make cuts of £44 million pounds. This is nonsense. Its government grant may be reducing, but it is gaining income from business rates. As noted above, its core spending power is being reduced by £6 million next year. Surrey is getting £24 million in transitional relief over the next two years, but that’s because its grant is being reduced by more than most. Its core spending power was going to be reduced by £20 million next year; with the transitional relief, the reduction will be £8 million, still more than Croydon’s.
There was one announcement the government made which I hope every politician in Croydon will welcome. Back in 2003/4, the then Labour Government made some changes to the formula used to divide up central government funding between the hundreds of councils in England. These changes significantly disadvantaged Croydon and they have been locked in place ever since. I have desperately been lobbying to get the formula reviewed and last Wednesday Greg Clark, the Secretary of State for Communities & Local Government, announced that the government will do so. In the last six years, the Government has reviewed the NHS and schools funding formulas and the Mayor of London has reviewed the police funding formula. In each case, Croydon benefited significantly and I expect it do so from this review too.
* Those with larger taxbases - fewer people reliant on Council Tax Benefit and higher property prices, meaning most homes are in higher Council Tax bands - can raise more money for a given level of Council Tax so don’t need as much government grant to deliver a given level of service.