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Assessing England’s 2021-22 Local Government Finance Settlement

Briefing note

On Thursday, the government set out its plans for council funding in England next year. In this briefing note we examine plans for both core funding and top-ups for ongoing COVID-19 related costs, and look at some of the issues looming beyond next year.

Key findings

  1. Of the £2.2 billion (4.5%) increase in core funding projected for next year, less than £0.3 billion is from the government. The other £1.9 billion is from increases in council tax bills of up to 5%, and assumes councils make full use of the allowable increases.

  2. If they do, the average band D rate would increase to around £1,907,
    up 29% in cash-terms and 16% in real-terms on its level in 2015-16.
    Core funding in 2021-22 would be 15% higher in cash-terms and 1%
    higher in real-terms than in 2015-16. Accounting for population growth
    though, this amounts to a 3% cut in core funding per capita over the
    last 6 six years. And this follows much bigger cuts over the period
    2009-10 and 2015-16.

  3. The actual increase in core funding is likely to be lower. This is not only because some councils may not increase bills by the full 5%. It’s also because the government’s projections assume that the numbers of people claiming means-tested council tax discounts continue to fall as they did prior to the COVID-19 crisis. This almost certainly will not be the case – indeed increases in unemployment will likely mean an increase in claimants. The government is providing £670 million as part of its £3 billion COVID-19 funding package for next year to address this issue. But it is important not to ‘double count’ this money as both part of ‘core’ and ‘COVID-19’ funding, which is something that the way the government has presented figures may lead people to do.

  4. The plans imply a further increase in reliance on council tax for overall core funding – 61% in 2021-22, compared to 49% in 2015-16 and more like 40% back in 2009-10. Relying on council tax for funding increases potentially has distributional consequences: councils in poorer areas and in the North and Midlands can raise less via council tax. However, the government has largely addressed this issue next year by allocating more of the increase in grant funding to such councils.

  5. The extra COVID-19 funding being provided for next year does not look unreasonable if the impacts of the pandemic largely recede by summer as the vaccination programme rolls out and warm weather returns. If impacts persist though, additional funding may be needed, and in this case, the government could call on its £21 billion COVID-19 reserve.

  6. The picture for subsequent years is less rosy though. There is potential for longer-run and indirect effects of the crisis on the prevalence of chronic ill-health and safeguarding issues, which would come on top of pre-existing demand and cost pressures. This means it is highly likely that a funding gap will open up in future years, unless there are continued large increases in council tax and/or additional funding is allocated or devolved to councils.

  7. There is also a whole raft of reviews that councils are waiting on – of the adult social care system, funding allocations, business rates reform, fiscal devolution, and post-Brexit regional development funding. Each of these may have major implications for councils’ spending responsibilities and needs or revenues in the years ahead. The longer-term financial outlook for local government therefore remains highly uncertain – and challenging
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Press release
Thursday’s Local Government Finance Settlement set out an increase in core funding for English councils of up to £2.2 billion (4.5%) next year, and highlighted £3 billion of additional support for COVID-19 costs.