Written Statement: Provisional Local Government Settlement 2021-22

Today I am publishing details of the core funding allocations for unitary authorities for the forthcoming financial year through the Provisional Local Government Revenue and Capital Settlements for 2021-22 (the Settlement).

Adjusting for transfers, the core revenue funding for local government in 2021-22 will increase by 3.8% on a like-for-like basis compared to the current year. In 2021-22, local authorities will receive £4.65 billion from the Welsh Government in core revenue funding and non-domestic rates to spend on delivering key services.

In addition to this, I am publishing information on revenue and capital grants planned for 2021-22. These amount to nearly £1 billion for revenue and over £720 million for capital. The Government is providing these indicative grant values and distributions now so that local authorities are able to plan their budgets efficiently. This information will be further updated for the final settlement.

As set out in yesterday’s draft budget the Welsh Government’s funding priorities continue to be health and local government services. While I know local government has been facing significant pressures, particularly arising from the COVID-19 pandemic, I hope that this increase, building as it does on a significantly improved settlement in 2020-21, enables authorities to continue to support and deliver critical and valued local services.  In setting the overall Settlement at this level the Government has responded to the negative impact of the pandemic on Non Domestic Rate (NDR) collection. The baseline Settlement increase of £176m reflects a larger increase in the Revenue Support Grant (RSG) to compensate for the fall in NDR. It also accounts for the impact of freezing the NDR multiplier. After adjusting for transfers into the Settlement, this equates to an increase of £172 million in Settlement funding, compared with 2020-21.

The Minister for Finance and Trefnydd was clear in the draft budget that one of the hard choices we have faced in setting our spending plans for next year is our approach to public sector pay. The reality is that we did not receive any additional funding through the Barnett formula to provide for public sector wide pay awards next year given the UK Government’s decision to pause public sector pay rises, with the exception of the NHS and those on the lowest wages. The implications of pay awards in 2021-22 will therefore need to be accommodated within Authorities’ budget planning in the light of this Settlement. Our decisions in the budget, target as much support as we can to health and local government to support pressure in frontline services focusing on schools and social services.

Whilst we did not receive any additional funding from the UK Government for public sector pay, in determining the distribution of funding across authorities for the Settlement, we have recognised the decisions made on the 2020/21 teachers' pay deal and the commitment made by local government to fund this deal by directing funding into the schools part of the formula. We are also continuing to provide funding for our proposals for new eligibility criteria for free school meals, given the continued rollout of Universal Credit by the UK Government.

Through this Settlement, we are continuing to provide £4.8 million for authorities to deliver additional discretionary rates relief for local businesses and other ratepayers to respond to specific local issues.

In line with the Government’s focus on countering the effects of poverty, we remain committed to protecting vulnerable and low-income households from any reduction in support under the Council Tax Reduction Schemes, despite the shortfall in the funding transferred by the UK Government following its abolition of Council Tax Benefit. We will continue to maintain full entitlements under our Council Tax Reduction Scheme (CTRS) for 2021-22 and are again providing £244 million for CTRS in the Settlement in recognition of this.

Alongside the Settlement we are continuing to provide funding to support local government to waive fees for child burials. This shared commitment ensures a fair and consistent approach across Wales.

I am not minded to provide for a funding floor for this year given the increased settlement for 2020-21 and the proposed allocations I am announcing today for 2021-22. I have accordingly allocated all the funding available up front.

A wide range of services of course have been significantly impacted by the pandemic.  As the Finance Minister’s statement on the budget made clear, we recognise the need to continue to provide funding to support Local Government’s response to the pandemic. This will be considered separately and does not form part of this Settlement.

This Settlement provides Local Authorities with a stable platform for planning their budgets for the forthcoming financial year. I fully appreciate the pressures local government is facing and am committed to protecting local government, particularly at this difficult and challenging time. This is as good a Settlement as the Government can offer and one which should help to alleviate some of the pressures Authorities are anticipating. While I can’t guarantee that there will be no changes between the provisional and final settlements, due to the financial uncertainty that we currently face, I do not intend making any significant changes to the methodology or the data underpinning the distribution of this Settlement.

Attached to this statement is a summary table setting out the Settlement allocations by authority. The allocations are derived using the formula agreed with local government.  As a result of the formula and related data, the table shows the range of the funding allocations, from a 2.0% increase over the 2020-21 settlement to a 5.6% increase.

Further details on the Settlement will be sent to all local authorities and published on the Welsh Government’s website:

Local government revenue and capital settlement 2021 to 2022

General capital funding for 2021-22 will continue to be set at £198 million. Included within this amount is £20 million for the continuation of the public highways refurbishment grant, including support for active travel; £54 million of historic baselined general capital grant; and the continuation of an additional £35 million of general capital grant, which was announced as part of the 2019-20 and 2020-21 budgets. This additional £35 million will enable Authorities to begin to respond to our joint priority of decarbonisation, including for housing and economic recovery following COVID-19.

We have discussed, before, our shared recognition of the need to invest in the supply of housing.  Investing in social housing should minimise the pressures on local authority budgets and on homelessness services. Investment in housing can also support the Welsh economy and local economies. I hope that this Settlement, capital and revenue, can support Authorities in increasing the scale and pace of housebuilding across Wales.

I know that Authorities will need to make choices in setting their budgets. They will need to engage meaningfully with their local communities as they consider their budget priorities. The setting of budgets, and in turn council tax, is the responsibility of each local authority and authorities will need to take account of the full range of sources of funding available to them, as well as the pressures they face, in setting their budgets for the coming year.

This announcement commences the formal seven-week consultation on the provisional local government settlement. This will end on 9 February 2021.

This statement is being issued during recess in order to keep members informed. Should members wish me to make a further statement or to answer questions on this when the Senedd returns I would be happy to do so.

Summary table

2021-22 provisional settlement – comparison of 2020-21 AEF (adjusted for transfers) and 2021-22 provisional AEF, and distribution of the 2020-21 Council Tax Reduction Schemes funding (distributed within AEF) (£000s)

Note: Total may not sum correctly due to rounding

1.  2020-21 AEF adjusted transfers of £5.127m (at 2020-21 prices) into the Settlement