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Chapter 33

Cross-Departmental Review of Local Government Finance

Background

33.1 Local government provides key public services such as schools and care for the elderly which play a vital role in improving the lives of local communities. It spends more than £55 billion, financed by government grant, non-domestic rates and council taxes. The Government is committed to modernising local government to ensure high quality, cost effective services are provided throughout the country. Some key steps have already been taken. Best Value now provides a performance framework to help give local people high quality services. Crude and universal capping has been ended and new reserve powers put in place to protect people from excessive council tax increases. Local authorities have benefited from stable and predictable grant levels.

33.2 The next steps take forward the partnership between central and local government: setting clear goals and responsibilities; providing greater certainty over funding streams to promote longer term planning; developing systems that help local government to deliver while giving central government security that national priorities are being met; and giving real incentives to improve delivery.

Outcomes

33.3 As a result of this review, the Government will work in partnership with local government to provide effective local services which meet national and local priorities by:

• giving local government its best settlement for many years - an average real increase of 3.1 per cent a year over the three years (allowing for changes in responsibility);
• extending the Public Service Agreement (PSA) approach to local services. A national level Local Government PSA will pull together the key targets agreed with Departments that local authorities will help to deliver. The Government will also work with local authorities and the Local Government Association to pilot Local Public Service Agreements (Local PSAs), which will help to achieve key Government and local priorities: rules and regulations that get in the way of better performance will be removed and improved performance rewarded;
• channelling an additional £800 million over the next three years to the most deprived areas through a Neighbourhood Renewal Fund (NRF): this will help to tackle deprivation more effectively, deliver improved performance and encourage closer partnership working;
• providing new investment for a new local government on-line initiative to help deliver a step change in the electronic delivery of local services;
• giving a significant boost to local authority investment through capital spending and PFI; and
• increasing certainty and predictability over future funding allocations for local authorities.

The Government's priorities

33.4 Government departments have agreed new Public Service Agreements setting out their key goals. The PSA White Paper will include a Local Government PSA which will draw together targets - covering schools, social care, housing, transport and other local services - from departmental PSAs to be delivered through local authorities and their local partners. It will also include some council-wide PSA targets (summarised in Box 33.1).

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Local Public Service Agreements

33.5 Local PSAs, which will strengthen links between central and local government, have been developed in close partnership with the Local Government Association and local authorities and are based in part on their Local Challenge proposals. Building on the foundation provided by Best Value, local authorities will be able to sign up to challenging targets to deliver key national and local priorities in return for agreed operational flexibilities and incentives. Authorities that meet the more stretching performance targets agreed in local PSAs will gain access to a new Performance Reward Fund and increased freedoms. A pilot with around 20 authorities will be run for 2001-02, ahead of a planned wider rollout in 2002-03. Details of the scheme will be published shortly.

Neighbourhood Renewal Fund

33.6 As part of the local government settlement, the new Neighbourhood Renewal Fund (NRF) will channel an extra £100 million in 2001-02, £300 million in 2002-03 and £400 million in 2003-04 to the most deprived areas. It will make a key contribution to the delivery of the National Strategy for Neighbourhood Renewal - including new targets for education, crime, employment, health and housing in deprived areas - and help to get money to where it is most needed. Authorities will work with new Local Strategic Partnerships to draw up local deprivation strategies which will spell out how the additional funding will help to renew the most deprived communities and promote closer cooperation with the police, health and other local services.

Local Government on-line

33.7 The Government is committed to making public services more accessible and convenient. Additional resources are being provided over the next three years to ensure that local government will make its contribution to the Government's target of 100 per cent electronic service delivery by 2005. This, along with over £1 billion already spent annually by local authorities on IT, will allow local government to develop on-line delivery of priority local services.

Spending plans

Improved revenue funding

33.8 New spending plans provide for real increases in Standard Spending Assessments of 3.0 per cent in 2001-02, 3.1 per cent in 2002-03 and 3.4 per cent in 2003-04 (after allowing for changes in responsibility). Standard Spending Assessments are spending by local government which the Government is prepared to support through grants. Further support will be provided through departmental programmes, in the form of specific grants, credit approvals to fund capital spending and capital grants. In addition, the Government will support local authority PFI investment of £1.0 billion in 2001-02, £1.4 billion in 2002-03 and £1.6 billion in 2003-04.

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A boost to local government investment

33.9 Over the next three years, local government investment will increase substantially to modernise key local services such as schools and public transport. Private finance support will double over three years, building on the successful programme to procure cost effective services for local authorities.

Greater certainty and predictability

33.10 Stability and predictability of funding improve planning and performance. Earlier information will be provided on capital programmes and specific grants. On capital, three year plans for at least 85 per cent of total capital resources provided to local authorities will be announced in Departmental Investment Strategies to be published in the autumn, with details of how this will be distributed to individual local authorities to follow by December 2000. For specific grants, the aim will also be to announce in the autumn the majority of grants on a three year basis, together with information on how they will be distributed.

Table 33.1: Standard Spending Assessments

Note 1: All Standard Spending Assessments are for local authorities' revenue spending.
Note 2: Figures for 2000-01 have been placed on a comparable basis to 2001-02 by adjusting for transfers made during the 2000 Spending Review reflecting changes of responsibility in 2001-02. Total transfers out of SSAs sum to £473 million.
Note 3: Capital Financing figures for 2000-01 include the PFI Special Grant.

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Table 33.2: DETR - Local Government

* Departmental Expenditure Limit. Total DEL and Resource Budget for 2000-01 contain £473 million which has been transferred out for 2001-02 reflecting changes of responsibility in 2001-02.

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