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Local Government Finance

Volume 575: debated on Wednesday 5 February 2014

I have today laid before the House the Local Government Finance Report (England) 2014-15 (HC1055) and the Referendums Relating to Council Tax Increases (Principles) (England) Report 2014-15 (HC1056). These reports set out for each local authority in England individual settlement funding assessments, tariffs and top-ups, and the basis of their distributions and the council tax referendum principles for 2014-15. Copies of the appropriate documents have been placed in the Vote Office and the Library of the House.

I shall be making available full supporting information online at:

A draft of the local government finance report was issued for consultation on 18 December 2013 and we received a total of 138 written responses from local authorities, fire and rescue authorities, formal and informal groupings of authorities and others during the consultation. In addition, Ministers met delegations from representative bodies including the Local Government Association and London councils as well as individual local authorities. In their responses local authorities welcomed the reductions in holdbacks that we proposed during consultation and raised a number of issues around distribution. Having considered the views of all those who have commented on the provisional settlement, I have decided to confirm the proposals for the settlement for 2014-15 as announced in December.

Helping local councils pay off the deficit

The autumn statement ensured that the local government budget is protected next year so that councils can deliver a council tax freeze. Councils now have more stability and certainty to plan budgets and move ahead with transforming local services and ongoing efficiency. English local government is expected to spend some £117 billion in 2013-14, so the settlement that we have set out recognises the responsibility of local government to find sensible savings and make better use of its resources and leaves councils with considerable total spending power, with an overall reduction, excluding the Greater London Authority, for next year of just 2.9%. The settlement also confirms the £9.5 million that we proposed for the most rural local authorities in order to assist them in driving forward efficiencies in their area. This grant will now be known as rural services delivery grant in order better to reflect its purpose and will be rolled into the settlement, thereby offering further protection for the most rural authorities.

Every bit of local government needs to do its bit to help pay off the deficit left by the Labour Government, given that it accounts for a quarter of all public spending. The settlement offers increased protection from the safety net so that no council will face a loss of more than 6.9% in their spending power in 2014-15. This is a higher level of protection than we offered both last year and the year before. We have achieved this by increasing the amount we have made available to protect councils through the efficiency support grant, now worth some £9.4 million in 2014-15. But we will expect the councils in receipt of that funding—in line with the efficiencies that we are asking all councils to deliver—to improve services. We will be paying £1.7 million to the efficiency support grant authorities in recognition of the extra progress they have made in fulfilling their plans in the first half of 2013-14.

In order further to facilitate effective budget planning, we are also making available illustrative figures for 2015-16, and that year marks the introduction of the better care fund—£3.8 billion-worth of pooled budgets available between health and social care. This is the largest ever financial incentive for councils and NHS organisations jointly to plan and deliver joined-up services. Alongside this, the new homes bonus remunerates those councils that help build more homes and bring empty properties back into use. The new homes bonus will be some £916 million in 2014-15.

Keeping council tax down for hard-working people

Under the Labour Government, council tax bills across England more than doubled. This Government have taken action to help hard-working people with the cost of living. That is why we have provided extra central funding to local authorities so they can freeze council tax for the next two years. This means we have provided total freeze funding of up to £5.2 billion up to 2015-16, which is an unprecedented five years of council tax freezes worth potentially up to £1,100 for an average band D taxpayer over the lifetime of this Parliament.

From April 2014, funding for 2011-12 and 2013-14 freezes is now in the main local government settlement total for future years. The Secretary of State has also agreed with the Chancellor that the funding for these next two freeze years will also be built into the spending review baseline. We hope this will give maximum possible certainty for councils that the extra funding for freezing council tax will remain available, and there will not be a “cliff edge” effect from the freeze grant disappearing in due course. We have played our part—we now expect councils to play theirs. Today I am publishing a list of the 137 authorities that have already indicated they will freeze or cut council tax, and I encourage all eligible local authorities to follow their lead.

The Localism Act 2011 introduced new protections for local residents against excessive council tax increases. The report on council tax referendums proposes to the House a referendum principle of 2%, with a slightly modified principle for the City of London element of the Greater London Authority precept. This threshold is lower than last year and, I believe, strikes an appropriate balance between direct democracy and representative democracy.

We would expect that most councils will wish to freeze council tax, but any that set an increase of 2% or more will need to arrange for a binding referendum to be held. We are allowing council tax referendums to take place on the same day as the European elections on 22 May, so a council tax referendum can be held at minimal cost. Councils that decide not to freeze their bills should trust the people by holding a local referendum.

Following Royal Assent of the Local Audit and Accountability Act 2014, the referendum principles will include levies and will therefore be based on the level of band D council tax. This will mean the principle will relate to the actual increase which appears on people’s bills— again reducing costs for taxpayers and preventing hikes in bills by local quangos with no democratic mandate.

We have not determined principles for local precepting authorities in 2014-15, but we are putting on notice that we are prepared if necessary to apply the referendum thresholds to larger town and parish councils from 2015-16 onwards to provide protection for local taxpayers and extend the principle of direct democracy.

We have also set out previously that there is some £3.3 billion in the settlement this year for council tax support schemes. There is an element within this national pot that is there specifically to reflect reductions in the parish tax base. We have not separately identified the money because it is not ring-fenced and as case loads change and schemes evolve, the amount that different parishes need will change. It would be wrong to try to manage that centrally. But we have been clear that we expect billing authorities to carry on passing on support to town councils and parishes to help mitigate any reduction in their tax base due to the local council tax support scheme.


This settlement marks the second year of local business rates retention and we have again tried to be fair to all parts of the country whether north, south, rural or urban. Given the local flexibilities and freedoms that we have put in place, local councils should now work to support local enterprise, building more homes and backing local jobs, so that they can then invest the rewards of growth in local services and in lower taxes.