Written Statement - Provisional Local Government Settlement 2014-15

Today I am publishing my proposals for the funding of Local Government in Wales for 2014-15.  This includes details of the provisional allocations of the core unhypothecated funding each Unitary Authority may expect to receive for the forthcoming financial year.  The allocations in respect of 2014 15 may be revised for the final Settlement to reflect more up-to-date tax-base and other relevant data, however, I am confident the information provides a robust basis for forward planning by Local Authorities.

Today’s Settlement is delivered against an unprecedentedly challenging financial context, however, the Settlement continues to ensure an appropriate Settlement for Local Government in Wales to enable them to protect vital services in the face of severe funding pressures. As a consequence of UK Government decisions, by 2015-16, the Welsh Government budget will have been cut by £1.7 billion in real terms since 2010-11. Whilst Welsh Government has consistently achieved a better outcome for Local Authorities here compared to England, I acknowledge this is an extremely challenging Settlement.  However, the people of Wales will not understand if we focus on what cannot be done for the want of resource, when they would expect us to be focused on ensuring better services and outcomes for such a substantial investment.  That is my expectation too. The substantial funding, over £4bn, which I am making available for Local Government in Wales, must be spent wisely in order to support stronger and more effective delivery of public services.  

Since I took over this portfolio in March, I have been clear about the future financial reality facing Local Government in Wales.  In shaping this Settlement, I have worked hard to increase flexibility, achieve fairness and provide additional support to help Local Authorities manage the challenges ahead. The decisions I have taken reflect the value the Welsh Government places on the wide variety of services provided by Local Authorities.  The focus now needs to be on intensifying efforts to continue to achieve transformational change to sustain these services and deliver the best outcomes for individuals across Wales.

I propose to set the overall general revenue funding for Local Government in 2014-15 at £4.26 billion.  This incorporates the transfer in of £39.3 million of specific grant funding into the Settlement. The funding announced today represents a decrease of 3.5% (£153 million) compared with 2013-14, when adjusted for transfers.  

Also included within this year’s Settlement is an additional £4 million to support the Local Government Borrowing Initiative for Highways Improvement.

Despite the reductions to the Welsh Block Grant since the 2010 Spending Review, Welsh Government has maintained funding support for Local Authorities in Wales over the past three years in cash terms. This was protected to enable Local Government to prepare for and invest in transforming the delivery of services in expectation of tougher times ahead.

Whilst today’s Settlement represents a reduction in funding compared with 2013 14, it still reflects a balanced outcome for Local Government in Wales, set against the constraints imposed on our budget by the UK Government. It continues to represent a significantly better outcome for Local Authorities in Wales compared to the reductions faced by their counterparts in England. The Institute for Fiscal Studies1 (IFS) has identified in 2013-14, the total Welsh Block was 9.4% lower in real terms than in 2010-11 (after adjusting for transfers). In comparison, the Welsh Government has prioritised funding for Local Government, implementing a real terms reduction of half of that experienced by Local Authorities in England, 4.5% over the period 2010-11 to 2013-14.

Indicative allocations for 2015-16
I am also publishing today indicative figures for 2015-16.  These show a further 1.55% decrease on the 2014-15 funding.  These figures are indicative and subject to change as a result of the potential of further UK budget revisions.

Protection for schools 
The Settlement reflects the Welsh Government’s commitment to protect schools funding in order to ensure the delivery of the best outcomes for Welsh children. The Revenue Settlement, therefore, includes the resources necessary to contribute to a 1% protection above the change in the Welsh Government’s Budget.  

For 2014-15, this commitment provides an additional £16 million in total.  This uplift is in addition to the provision of over £60 million for education protection over the three years up until 2013-14.

Without this commitment, the decrease in the Settlement announced today and over the past three years would have been greater.  In these exceptionally challenging times, this funding has provided and will continue to provide, vital resources for local services and ensure we continue to deliver the best outcomes for our children  

School Improvement Services
I am pleased the Minister for Education and Skills has recently negotiated an agreement with Local Government to deliver a new model of regional working in relation to school improvement services, whilst still providing funding for this through the Revenue Support Grant.  This enables Authorities to deliver on their commitments to support regional improvement services whilst retaining flexibility within their overall budget.

Transfers
This year’s announcement continues our commitment to Local Government to reduce the proportion of overall funding which is provided as specific grants. Included within the RSG for 2014-15, is £39.3 million of funding previously provided through specific grants. From my own portfolio, I have decided to de-hypothecate over £30 million previously identified for Private Finance Initiative (PFI) and the Public Facilities Grant. This means over this Assembly term £145m has been transferred into the Revenue Settlement.

By providing this funding through the RSG, I aim to give Local Authorities greater flexibility in managing their resources to support them in making decisions about the prioritisation of resources. Transferring these grants into the RSG will also ensure funding can be used to support frontline delivery of services rather than diverting to unnecessary administration.  I am also commissioning a review, in partnership with Local Government, of the remaining specific grants. The review will consider how best to ensure funding is used for its intended purpose, whilst ensuring administration and overheads are minimised.

Also transferring into the Settlement for 2014-15, is an additional £3.2 million in relation to the First Steps Improvement Package and £5.2 million for the administration of Council Tax Reduction Schemes.  This was previously paid as part of the complicated grant subsidy provided by the Department for Work and Pensions for administering Council Tax Benefit and Housing Benefit.  

Council Tax
I am distributing all the available funding through the Settlement for the benefit of all Local Authorities and the people of Wales.  In setting council tax levels, I expect Authorities to ensure they are able to sustain local services and implement the protection we are providing for school.  However, I also expect them to balance this with considering the pressures on the finances of hard-pressed households.  It will be for each Local Authority to justify its decision on council tax to its citizens.

In enabling Local Authorities to make local decisions about council tax, I am offering them flexibilities in managing their budgets which are not available to their counterparts in England where restrictive freezes apply.  However, I have made it very clear I am prepared to use capping powers available to me in the event of excessive increases.

Support for Council Tax 
Following the abolition of Council Tax Benefit by the UK Coalition Government, Welsh Government has decided to maintain entitlements under the Council Tax Reduction Scheme.  In November, I will bring forward Regulations which place a duty on Local Authorities to introduce Council Tax Reduction Schemes for 2014-15, which maintain full entitlements for all eligible claimants and retains the national framework scheme we introduced last year. In line with this intention, I am supporting Local Government to deliver the scheme by distributing £244 million within the settlement.  This reflects the cost of the scheme when it was first established but means Local Authorities must take account of any additional costs in making their decisions about council tax levels for 2014-15. A further £5.2 million is being included in the Settlement for the administration of Council Tax Reduction Schemes. Given the on-going shortfall and the continuing pressure on our budgets, I have also commissioned a review looking at our options for a longer-term solution which will provide an equitable and sustainable scheme within the available funding to be implemented from 2015-16.

Damping
To mitigate the year-on-year impact on any individual Authority, I intend to apply a damping mechanism within the Settlement.  As agreed through the consultative process for developing the Settlement formula, funding relating to the Local Government Borrowing Initiative and the Private Finance Initiative has been excluded from the damping calculation process.  These elements are used to fund commitments already agreed with Local Authorities.

The damping threshold I have set will mean no Authority will experience a reduction of more than 4.75% on their 2013-14 allocations, when adjusted for transfers.  Funding for the two components outlined above is provided to Authorities in addition to this threshold. Overall, this means no Authority will experience a reduction of more than 4.6%, when adjusted for transfers.

Individual Authority allocations
Table 1 sets out the distribution of Aggregate External Finance (which includes Revenue Support Grant and re-distributed Non Domestic Rates) between the 22 Authorities for 2014-15.

Capital funding
As a result of the reductions in the capital budget delegated to us by the UK Government, capital allocations for Local Government continue to present challenges.  However, the capital funding for 2014-15 will represent a better Settlement for Local Authorities than was indicated last year.

Consultation
In announcing details of the Settlement today, I initiate the start of a 5-week period of consultation which will conclude on 20 November 2013.  During the consultation period, I will consider whether there are further flexibilities I can offer Local Government as part of the final Settlement to help them manage their budgets in 2014-15.

Conclusion
I am putting forward this provisional Settlement for consultation.  In doing so, I acknowledge this is a challenging Settlement. However, it is one where I have worked hard to ensure the best possible outcome for Local Government within the funding constraints we face. The focus now needs to be on maintaining quality services that deliver strong outcomes for the people of Wales, through more efficient, innovative and collaborative ways of working. Today’s provisional Settlement underlines that Welsh Government is committed to working alongside Local Government to manage the challenges ahead and to continue to deliver for the people of Wales. 

Notes:

1 “Scenarios for the Welsh Government Budget to 2025-26, Institute for Fiscal Studies Report R83, available at: http://www.ifs.org.uk/publications/6867