Written Statement - Provisional Local Government Settlement 2013-14

I am publishing today my proposals for the funding of Local Government in Wales for 2013-14.  This includes details of the provisional allocations of the core unhypothecated funding that each local authority may expect to receive for the forthcoming financial year (table 1).  The allocations in respect of 2013-14 are subject to revision in light of more up-to-date tax base and other relevant data but I am confident that the allocation provides a robust basis for forward planning by local authorities.

The settlement reflects the Welsh Government’s priorities of protecting schools and social care.  These services are, in the main, delivered by local authorities.  

I propose to set the overall funding for local government in 2013-14 at £4,378 million. This comprises the increase of 1.3% set out in the indicative settlement last year, along with the transfer of specific grants resulting in a cash increase of 3.6%. Taking into consideration the value of these grants last year, this means the new funding I am making available for local government equates to a 1.5% increase.

This delivers my commitment to increase local authority cash funding over the four-year spending review compared with a reduction in funding in England over the same period.  

The more generous funding package from the Welsh Government is reflected in the findings of the recent IFS Report on local government expenditure which reports that in 2012-13, Welsh local government budgeted to spend around £294 per head more on services compared with England.

Regional funding

I have delivered a better settlement over this spending period than local government expected and this was to recognise and support a new approach to the delivery of public services that would rely on greater collaboration to provide better services for less money.  It is true that there has been some notable – and highly commendable – collaborations, for example the move to a joint social service across Caerphilly and Blaenau Gwent.  I am also encouraged by the progress made through the Public Service Leadership Group - for example, in developing the proposed National Procurement Service - and I am grateful to its members who through volunteering their leadership and commitment are helping to drive reform, achieve efficiencies and improve service.

But it is also true that the step change in ambition and pace that was required to prepare councils for the financial circumstances ahead simply has not materialised across Wales.  It is difficult to see a real will amongst councils to engage effectively with one another on the big issues.

It is certain the next spending review period will be even more difficult than this one.  The recent WLGA report commissioned from the Institute for Fiscal Studies¹ recognises that local authorities must take the opportunity now, while there is still time, to engage quickly in meaningful regional collaboration to put themselves in the best position to face the future challenges.

To stimulate this, I am proposing to create a separate fund of just over £10 million from the settlement, equivalent to 0.25% of the total RSG excluding transfers and new responsibilities.  This fund will be available for authorities to access when they come forward with viable proposals for delivering collaborative projects on a regional basis.  These projects may be between some or all of the local authorities in a region and may also include the local health boards, police or fire service and third sector organisations in that region.  They must be significant, transformative and deliverable quickly so as to put authorities in a better place to weather the coming financial storm.  

I hope that local authorities will be able to use this fund to support new collaborative projects or to expedite projects which may have been put on hold due to the up front financial costs

I am looking to local government to develop proposals which meet my expectations. If they do not, I will regard this as a strong indication of a failure to take seriously the need to improve services through collaboration.

Protection for schools

In line with the First Minister’s commitment to protect schools’ funding in order to ensure the delivery of the best outcomes for Welsh children, the RSG includes the resources necessary to deliver a 1% protection above the change in the Welsh Government’s block grant each year.  This equates to a commitment to increase the funding for education within the settlement by £80 million over the four-year period.

Protecting the vulnerable and managing pressures

The settlement also maintains the commitment of the Welsh Government to protect the vulnerable in our society during these particularly difficult times.

Our collaborative work with local government to identify service pressures and risks, identified social services as a key area.  The increasing costs, and in particular the demand led-demographic pressures that are increasingly impacting on service provision, were identified as a crucial area of concern.  The Welsh Government recognises this concern and the protection afforded through the settlement will provide an additional £35 million per year by 2013-14 to enable local government to meet the pressures it faces on these vital services for young and old.

The RSG is an unhypothecated grant and together education and social services expenditure account for around two-thirds of grant related expenditure.  In these exceptionally challenging times, I acknowledge that protecting these services may put pressure on other services that local government provides but this was never going to be an easy situation.  The prudent use of other sources of funding including utilising income streams from fees and charges are options available to authorities to ease these pressures.

Transfers

This year’s announcement delivers on our commitment to local government to reduce the number and value of specific grants. Included within the RSG for 2013-14 is funding previously provided through specific grants. These include funding for the provision of special educational needs in post 16 education, free school breakfasts and learning disabilities resettlement.  By providing this funding through the RSG we are ensuring that all the money is available to support the frontline delivery of these services and that none of it needs to be diverted to unnecessary administration.

New Responsibilities: Council Tax support

Also included within the settlement is a notional amount of £214 million to fund the council tax support scheme.  This is a new responsibility which is being transferred to the Welsh Government as a result of the UK Government‘s decision to abolish Council Tax Benefit from April 2013.  The UK Government also determined that the funding will be cut by 10 per cent and will move from demand-led to fixed-limit budgets. 

I have grave concerns about the impact of the decision of the UK Government to cut this funding and as I have still not been notified of the final allocation I am concerned that the cut may be greater than 10 percent and that the cost of setting up and administering a new scheme will not be taken into account.  I am continuing to press the UK government on these issues.

I have agreed with my Cabinet colleagues that the final value of the transfer will be applied in full to this function. The Welsh Government does not have the resources to make up the shortfall in funding being transferred by the UK Government, but is working closely with local government to design a scheme that can be managed within fixed budgets.  

Individual authority allocations

Table 2 sets out the distribution of the Revenue Support Grant across the 22 authorities for 2013-14.

Council Tax

I am distributing the whole RSG, including a £50 million uplift compared with 2012-13, for the benefit of all local authorities and their citizens in Wales.  This will allow councils to freeze their council tax if they so choose.  In setting council tax levels, I expect them to sustain services and implement the protection we are providing for schools and social care funding. The choice is theirs.  It will be for each local authority to justify its decision on council tax to its citizens.

Local authorities should consider carefully the balance between the need to sustain key services for their citizens’ benefit and the need to limit any additional pressure on hard-pressed households.  

Capital funding

As a result of the reductions in the capital budget from the UK Government, capital allocations for local government continue to be challenging.  However, the capital funding I am announcing today represents a significantly better settlement for local authorities than the 13.2% decrease which was published in last year’s indicative settlement.

Overall, the capital settlement including specific capital grants amounts to £412 million, represents considerably smaller reduction of 1.9% on the amount for 2012-13.  

In providing details of the settlement, today marks the start of a consultation period that will end on 13 November 2012.  

Conclusion

I am putting forward this provisional settlement for consultation.  In doing so, I acknowledge there remains a risk around the actual transfer for future council tax support arrangements.  I also recognise that on almost all measures this is a relatively good settlement for local government in the financial circumstances.  However, I am concerned that the short term future settlements will be very much more difficult and that authorities are still not sufficiently prepared to deal with those pressures.  The fund I have set aside, together with the existing Welsh Government resources available to them, will remove any further barriers to changing services.  I hope that between them, they have the will to respond.