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Local Government Finance Settlement

Volume 688: debated on Thursday 4 February 2021

Today I laid before the House the “Report on Local Government Finance (England) 2021-22”, the “Council Tax referendum principles report 2021-22” and “Council Tax alternative notional amounts report 2021-2022”, which together form the annual local Government finance settlement for local authorities in England.

My Ministers and I have held meetings with representative groups, including the Local Government Association, and with councils and MPs. Representations from 155 organisations or individuals have been carefully considered before finalising the settlement.

Social care

This Government are dedicated to supporting the most vulnerable, which is why this settlement provides access of up to an additional £1 billion of funding for adult and children’s social care, comprising £300 million in grant and a 3% adult social care precept. In the interests of stability, the Government propos to roll forward allocations of the £1.41 billion 2020-21 social care grant and continue the 2020-21 improved better care fund at £2.1 billion.

Our proposal is to use £240 million of the additional £300 million social care grant as an “equalisation” component, to level the playing field, recognising that the distribution of resources generated through the adult social care precept does not match the pattern of assessed need. The remaining £60 million will be allocated directly through the existing adult social care funding formula.

New homes bonus

Following consultation, the Government are proposing a new round of 2021-22 (year 11) new homes bonus payments. This will be the final set of allocations under the current approach.

The Government are committed to developing a more efficient and effective way of incentivising housing growth, which is why I am pleased to announce that we plan to consult shortly on the future of the new homes bonus.

Lower tier services grant

The Government are proposing a new un-ringfenced lower tier services grant in 2021-22, which will allocate £111 million to local authorities with responsibility for lower tier services.

As part of this, the Government are proposing a minimum funding floor, at a cost of £25 million, so that no authority, either upper or lower tier, will have less funding available in 2021-22 than last year. This minimum funding floor is in response to the current exceptional circumstances and is a one-off.

Minor changes have been made to all allocations proposed at the provisional settlement to take account of changes to new homes bonus allocations arising from updated house completion statistics.

Rural services delivery grant

The Government will be increasing the rural services delivery grant by £4 million, taking the total to £85 million, the highest ever. As in previous years, this grant will be distributed to the top quartile of local authorities on the “super-sparsity” indicator.

Independent living fund

I can confirm that the former independent living fund recipient grant will continue to be paid to local authorities in 2021-22. The total value of the grant will be maintained at the 2020-21 value of £160.6 million, with the same approach to individual local authority allocations. Details will be published shortly.

Council tax

The Government manifesto commits to continuing to protect local taxpayers from excessive council tax increases, and it is for the House of Commons to set an annual threshold at which a council tax referendum is triggered. This is an additional local democratic check and balance to avoid the repeat seen under the last Labour Government when council tax more than doubled.

Next year, local authorities can increase council tax levels by up to 2% without holding a referendum and, where councils have adult social care responsibilities, they will be able to increase by a further 3% specifically for these services. To provide greater flexibility for councils that must take into consideration the situations of their residents when making council tax decisions, this 3% increase for adult social care can be deferred for use in 2022-23.

A referendum principle of up to 2% or £5, whichever is greater, will apply to shire district councils, and £15 on band D for police and crime commissioners. This package of referendum principles strikes a fair balance. The council tax referendum provisions are not a cap, nor do they force councils to set taxes at the threshold level. Councillors, mayors and police and crime commissioners and local councils will rightly want to consider the financial needs of local residents at this challenging point in time, alongside the public’s support for action on keeping our streets safe and providing key services.

Following the Mayor of London’s request, I have decided to place before Parliament a principle for the Greater London Authority which reflects the Mayor’s request for an increase of £15 (on band D) to fund transport concessions above the average level available elsewhere in England. The final decision on the increase in tax will be for the Mayor of London to take. The reasoning is set out in a letter to the Mayor, which I have placed in the Library.

At the same time as providing councils with the flexibility to set increases where they consider it appropriate, the Government also recognise the importance of providing support to those least able to pay. That is why we are providing councils with £670 million of new funding alongside the settlement, to enable them to continue reducing council tax bills for low-income households. This is in addition to the funding that is already built into the local Government finance system to fund local council tax support, which is a local discount, rather than a benefit payment.

Future of local government finance

As announced earlier in the year, the Government will not proceed with widescale funding reform in 2021-22, including the implementation of the review of relative needs and resources, 75% business rates retention, and a reset of accumulated growth under the business rates retention system.

Our decision to postpone reform has been taken in the interest of creating stability for local authorities and has allowed both the Government and councils to focus on meeting the immediate public health challenges posed by the covid-19 pandemic. We will revisit the priorities for finance reform in time for the next spending review, taking account of wider work on the future, of business rates and how best to organise and finance adult social care.

Covid-19 support

Councils have welcomed our estimated £3 billion package of support to respond to additional expenditure pressures and loss of income from the covid-19 pandemic in 2021-22. This package, on which I will provide further details shortly, includes £1.55 billion of un-ringfenced grant funding; a commitment to meet 75% of councils’ irrecoverable losses in council tax and business rates income for 2020-21, worth an estimated £800 million; an extension to the existing sales, fees and charges scheme for three further months, from April to June 2021; and an additional £670 million local council tax support grant.


Depending on local decisions, core spending power in England may rise from £49.0 billion in 2020-21 to up to £51.3 billion in 2021-22, a 4.6% increase in cash terms.

This settlement and the additional covid-19 resources build on the largest year-on-year increase in spending power in a decade last year, and recognise the resources and flexibility councils need to maintain critical services and their role at the heart of the national recovery from covid-19. The settlement provides further stability for the whole sector by maintaining core spending power at pre-pandemic levels, as a minimum for every authority in England. This stands alongside an unprecedented package of covid-19 support this year and next year, totalling over £11 billion in direct support for councils and £30 billion in additional support for local councils, businesses and communities.