Local Government Finance Settlement
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| Local Government Finance Settlement | |
|---|---|
| Name | Local Government Finance Settlement |
| Type | Fiscal allocation process |
| Country | United Kingdom |
Local Government Finance Settlement is the annual fiscal package by which the central authority determines funding for subnational authorities across the United Kingdom. It sets headline figures for revenue streams, grant allocations, and regulatory conditions that affect United Kingdom Parliament, Her Majesty's Treasury, Department for Levelling Up, Housing and Communities, Scottish Government, Welsh Government, and Northern Ireland Executive relationships with local authoritys. The process interfaces with statutory instruments, budgetary cycles, and political negotiation among ministers, treasurers, and opposition figures such as leaders of the Labour Party (UK), Conservative Party (UK), and Liberal Democrats (UK).
Overview and purpose
The Settlement establishes annual totals for central transfers including ring‑fenced grants, formula grants, and one‑off allocations determined by administrators at HM Treasury in coordination with ministers from Department for Levelling Up, Housing and Communities, devolved cabinets in Edinburgh, Cardiff, and Belfast, and key stakeholders such as the Local Government Association and unions like the UNISON (UK) and GMB (trade union). It aims to implement statutory duties arising from acts such as the Local Government Finance Act 1992, the Local Government Act 2003, and the Public Services (Social Value) Act 2012, while aligning with fiscal rules set by the Office for Budget Responsibility and budgetary commitments announced at the Budget of the United Kingdom and the Autumn Statement.
Legal and policy framework
Legal instruments underlying the Settlement include orders and regulations enacted under powers conferred by the Local Government Finance Act 1992 and related secondary legislation debated in the House of Commons and House of Lords. Policy guidance references frameworks developed by National Audit Office, Chartered Institute of Public Finance and Accountancy, and compliance measures overseen by bodies such as the Equality and Human Rights Commission. Devolution settlements negotiated in the St Andrews Agreement, the Scotland Act 2012, and the Wales Act 2014 alter statutory entitlements and require coordination with treasury frameworks like the Barnett formula.
Funding components and methodology
Core revenue sources specified in a Settlement typically include identified grants such as the Revenue Support Grant, targeted grants for services like adult social care and children’s services linked to statutes such as the Children Act 1989, and retained tax streams exemplified by councils retaining proceeds from Non‑Domestic Rates or business rates retention pilots negotiated with devolved administrations. Methodology draws on statistical baselines from the Office for National Statistics and needs assessments using indices like the Index of Multiple Deprivation and demographic projections from the ONS Population Estimates. Actuarial inputs from public pension schemes such as the Local Government Pension Scheme and compliance with Public Sector Equality Duty also shape the calculations.
Distribution and allocation mechanisms
Allocation mechanisms use formulae that incorporate expenditure baselines, statutory responsibilities, and redistribution principles tested in consultations with associations including the Society of Local Authority Chief Executives and Senior Managers and the Local Government Information Unit. Distribution can be adjusted by transitional arrangements, damping measures, or top‑sliced national initiatives announced alongside programmes such as the Levelling Up Fund or capital settlements tied to the National Audit Office recommendations. For some services, ring‑fenced grants specify eligible recipients and monitoring via partnership frameworks like those used in NHS England integrated commissioning and combined authority devolution deals negotiated with metropolitan mayors such as the Mayor of Greater Manchester.
Impact on local authorities and services
Variations in Settlement outcomes affect councils across unitary authorities including Birmingham City Council, county councils such as Essex County Council, and metropolitan boroughs like Leeds City Council. Funding shifts influence statutory provision under instruments such as the Care Act 2014 and service delivery models tested in pilot schemes with entities like the National Health Service (England). Fiscal pressures have prompted structural responses including shared‑service arrangements, outsourcing to companies such as Serco Group plc and Capita plc, and calls for reform from commissions like the Cross‑Party Commission on Local Government Finance.
Consultation, negotiation, and approval process
The Settlement is preceded by formal consultation papers issued by the Department for Levelling Up, Housing and Communities and evidence sessions before committees such as the House of Commons Communities and Local Government Select Committee. Negotiations involve councils, combined authorities led by figures like the Mayor of London, umbrella bodies including the Convention of Scottish Local Authorities, and lobbying by trade associations such as the Society of Local Council Clerks. Final approval is effected through ministerial statements in Parliament and statutory instruments laid before the House of Commons and the House of Lords.
Historical changes and notable settlements
Significant past settlements reflect policy shifts: the post‑1990s arrangements introduced under chancellors connected to the Maastricht Treaty era, the redistribution reforms accompanying the Local Government Finance Act 1992, transitional adjustments following the 2008 financial crisis, austerity settlements of the 2010s under administrations led by figures such as David Cameron and George Osborne, and later rounds tied to devolution deals with leaders like Andy Burnham and Sadiq Khan. Notable innovations include pilots for 100% business rates retention trialled in areas including Leeds and Greater Manchester and adjustments after major reviews by the Maltby Commission and reports by the National Audit Office.