HERTFORDSHIRE COUNTY COUNCIL

POLICY, RESOURCES AND PERFORMANCE CABINET PANEL

WEDNESDAY 14 DECEMBER 2011 AT 2.00 PM

LOCAL AUTHORITY PROVISIONAL FINANCE SETTLEMENT 2012/13

Report of Director Resources and Performance

[Author:Mike Parsons, Director Resources and Performance

01992 555500]

Executive Member:David Lloyd (Resources & Economic Wellbeing)

1.Purpose of the Report

1.1To advise the Panel on the impact of the provisional 2012/13 Local Government Finance Settlement for Hertfordshire County Council announced by the Secretary of State for Communities and Local Government, Eric Pickles, on 8 December 2011.

1.2To allow the Panel to consider any issues which should be raised with the Department for Communities and Local Government (DCLG) during the statutory consultation period ending 16January 2012. The Final 2012/13 Finance Settlement is expected in late January/early February 2012.

  1. Headlines

National context

2.1Formula Grant allocations for 2012/13 do not differ from those published on 7February 2011.

2.2There have been no changes regarding the removal of Local Authorities Central Services Equivalent Grant funding for those schools converting to Academies. Instead the Government has launched a consultation on the transfer.

2.3The split of Formula Grant between Revenue Support Grant (RSG) and Redistributed Business Rates (RBR)for 2012/13 has changed to such an extent that, if the council tax freeze grant 2011/12 were not added in, RBR would have exceeded Formula Grant (which is not permissible under the current local government funding regime).

2.4The Government has also published 2012/13 Council Tax Freeze Grant allocations that authorities would be eligible for if they freeze their 2012/13 council tax at 2011/12 levels. This payment however is one-off.

2.5The criteria under which a Council Tax Referendum would be called has been published.

2.6The Government’s response to the Local Government Resource Review consultation, which closed on 24 October 2011, will be published ‘shortly’. The Government will also shortly publish the draft Local Government Finance Bill, which will provide the legal framework for the localising business rates.

Local context

2.7Formula Grant for Hertfordshire in 2012/13 will be £190.268 million, compared to £200.716 million final settlement in 2011/12. However, the 2012/13 figure includes the second of four allocations of 2011/12 Council Tax Freeze Grant amounting to £12.567 million, whereas this was separate from Formula Grant in 2011/12.

2.8The split of Formula Grant between RSG and RBR differs from that previously published although the total is unchanged. RSG has fallen from £47.393 million to £3.618 million offset by a RBR increase from £153.323 million to £186.650 million.

  1. Formula Grant

3.1The provisional Formula Grant figure for Hertfordshire is £190.268 million for 2012/13. After taking account of the Government’s adjustments for changes in functions and funding this represents a decrease of £23.015 million (11.47%) (before application of Council Tax Freeze Grant) on 2011/12.

3.2Table 1 below shows the breakdown of the provisional Formula Grant figures for Hertfordshire County Council for 2012/13:

TABLE 1: HCC Formula Grant

Final
2011/12
£m / Provisional 2012/13
£m
27.663 / Grants rolled in / 27.220
193.573 / Relative Needs / 177.630
(165.981) / Resources / (148.484)
116.294 / Central Allocation / 105.647
29.167 / Damping / 15.688
177.701
Council Tax Freeze 2011/12(1) / 12.567
200.716 / Formula Grant / 190.268
Financed by:
47.393 / Revenue Support Grant / 3.618
153.323 / Redistributed Non-Domestic Rates / 186.650
200.716 / Total / 190.268

Note (1): this was separate from Formula Grant in 2011/12

Baseline changes

3.3There are two adjustments made to the 2012/13 Formula Grant for transfers out of funding relating to Private Sewers and the Local Authority Central Spend Equivalent Grant (LACSEG). These baseline adjustments have not changed from those announced on 7 February 2011.

Academies LACSEG Grant transfer

3.4The Department for Education (DfE)has published a consultation on its proposal for deciding on the calculation and recovery arrangements for the Academies Funding Transfer for 2011/12 and 2012/13. The early need to finalise the funding transfer and limited scope means the consultation will run for ‘four working weeks’ closing on 12 January 2012.

3.5The key points can be summarised as follows:

Formula Grant

  • For 2011/12 - there will be no change to the previously announced reductions in Formula Grant, despite the increase in the number of academies.
  • For 2012/13 - reductions for academies will not exceed the amounts originally announced. The DfE will recalculate the academy reductions during 2012/13, based on each authority's actual number of academies and costs per pupil. Where this calculation shows that the originally announced grant reduction was excessive the authority in question will receive a refund, in January 2013.
  • For 2013/14 onwards - the Government is looking at reforming the system by removing the funding for LACSEG related services from Formula Grant. This funding would instead be paid through a specific grant to authorities and to academies, proportionate to the number of pupils for which they are responsible and according to a national rate per pupil. There will be further consultation on this.

Dedicated Schools Grant (DSG)

  • LACSEG will be extended so that academies will receive pro rata shares of the authority's schools contingency budget in 2012/13. This has the potential to reduce the authority's ability to intervene in schools causing concern as the schools contingency budget includes funding for this purpose.

Formula changes

3.6There have been no formula changes.

Damping arrangements - floors

3.7Grant floors (damping) continues to operate under the same general principles as for 2011/12. Formula grant floorslimit the overall reduction from one year to the next.

3.8There are four separate groups of authorities, as detailed in the attached LGA Briefing. All education and personal social services authorities have been divided into four bands, according to the extent to which they rely on formula grant to fund their budget requirement. Band 1 is most dependent and Band 4 the least dependent.

3.9Hertfordshire County Council continues to be a floor authority in 2012/13 and is in Band 4. The Band 4 floor is -10.4% in 2012/13. This means the authority’s formula grant has been increased by £15.688 million in 2012/13 to bring us up to the grant floor in order to limit the overall reduction on a like-for-like basis between the years. This will be paid for by scaling back the grant increase of other authorities in this class above the floor.

3.10Floor calculations take account of changes in funding and functions to ensure grant comparisons between financial years are made on a like-for-like basis.

  1. Council tax freeze grant

4.1The Government has announced a further Freeze Grant for 2012/13. However unlike the 2011/12 Freeze Grant, this will be for 2012/13 only. In the interest of prudent medium-term planning, it will therefore be important that this is used to fund one-off, non-recurrent expenditure to avoid greater reductions in 2013/14.

  1. Other non-ringfenced grants

5.1Early Intervention Grant (EIG) has been increased following the Chancellor of the Exchequer’s announcement in the Autumn Statement 2011 that early education entitlement for two year olds will be expanded to cover around 260,000 children by 2014. Hertfordshire has an increase of £1.39 million.

5.2On 1December 2011 the provisional 2012/13 New Homes Bonus (NHB) allocations were announced. This will be paid for the first six years for each additional property, be it new build or an empty property brought back into use in the local authority area, with affordable homes attracting a higher payment (additional £350/unit). DCLG has stated that funding for the scheme for2011/12 and 2012/13 will be fully met by the Department and no authority will lose further Formula Grant to fund this. Provisional 2012/13 NHB allocations exceed available funding in 2012/13 by £6 million which will be recouped from local government resources in 2013/14. Final allocations will be issued alongside the Final Local Government Finance Settlement in late January/early February 2012.

  1. Outstanding government grant announcements

6.1There are still a number of outstanding Government grant announcements which are detailed below.

a)Community Safety Fund;

b)Youth Justice Board; and

c)Drug Interventions Programme.

6.2There is no indication when these grants will be announced.

  1. Comparison with Integrated Plan

7.1Table 2 summarises the differences between the settlement 2012/13 and the Integrated Plan assumptions for 2012/13.

TABLE 2:

IP / Settlement
2012/13 / 2012/13 / Difference
£m / £m / £m
Formula Grant / 177.701 } / 190.268 / -
Council Tax Freeze 2011/12 / 12.567 }
Council Tax Freeze Grant2012/13(1) / - / 12.648 / 12.648
Other Grants:
Early Intervention Grant / 35.561 / 36.951 / 1.390
Learning Disability & Health Reform / 38.402 / 38.425 / 0.023
NHS funding for Social Care / 10.586 / 10.586 / 0.000
New Homes Bonus / 1.638 / 1.998 / 0.360
Fire Control & New Dimensions / 0.277 / 0.266 / (0.011)
Local Lead Flood Authorities(2) / 0.548 / 0.548 / 0.000
Extended Rights & the General Duty to Promote Sustainable Travel(2) / 1.083 / 1.083 / 0.000
Community Safety Fund(2) (3) / 0.502 / 0.502 / 0.000
Youth Justice Board(3) / 1.129 / 1.129 / 0.000
Music Service(4) / 1.267 / 1.482 / 0.215
Drug Interventions Programme(3) / 0.741 / 0.741 / 0.000
Sub-Total Other Grants / 91.734 / 93.711 / 1.977
Total / 282.002 / 296.627 / 14.625

Notes:

(1)The exact amount of the one-off council tax freeze grant for 2012/13 will not be announced until early 2012, however the indicative value of £12.648 million is considered sound.

(2)These grants are now all included in a single grant called Local Services Support. All figures except for Community Safety Fund have been finalised for 2012/13.

(3)Pending announcements, these are included at 2011/12 values.

(4)The Department of Education has announced from 2012 music education is to be provided by new ‘hubs’ which will deliver music education in partnership, building on the work of existing local authority music services. The hubs will be fully operational from September 2012. Hertfordshire allocation is £0.494 million from April to August and £0.988 million from September to March 2013.

  1. Council tax referendum

8.1The Secretary of State for Communities and Local Government, Eric Pickles, has also announced Council Tax Referendum thresholds for 2012/13. This states that for county councils wanting to raise council tax by more than 3.5% next year they must consult the public in a referendum.After considering any representations from authorities, final principles will be set out by the Government in a Report to the House of Commons to seek approval for these, in parallel with the final report on the 2012/13 Local Government Finance Settlement.

8.2Thresholds for future years will be decided by ministers at the time.

  1. Consultation arrangements

9.1The deadline for responses to the consultation is Monday, 16 January 2012.

9.2Ministers have decided to meet with individual local authorities’ delegations during consultation.However, given the tight timetable forconsultation and preparation of the final settlement in the New Year, requestsfor meetings from individual authorities will be treated on a first come firstserved basis.

9.3DCLG has stated that written representations on the consultation are, of course, as effective as faceto face meetings. All representations will be carefully considered before finalMinisterial decisions are made.

  1. Further information

10.1The Local Government Association briefing on the provisional settlement is reproduced in the Appendix to this report.

10.2Further details on the provisional Local Government Finance Settlement can be found at the Department for Communities and Local Government website at:

  1. Recommendations

11.1The Panel is invited to:

(a)to note and comment on the provisional finance settlement for 2012/13;

(b)to note and comment on the consultation published by the Department for Education on the proposed decision on the calculation and recovery arrangements for the Academies Funding Transfer for 2011/12 and 2012/13; and

(c)to note that the Director Resources and Performance will respond to the consultations, in consultation with the Director Education and Early Intervention and the relevant Executive Members, taking into account comments from Members of the Cabinet Panel.

Background information referred to by the authors.

Department for Communities and Local Government - Local Authority Provisional Finance Settlement for 2012/13, December 2011.

Appendix 1

Local Government Association Briefing

Provisional Local Government Finance Settlement 2012/13

8 December 2011

  • The Government has announced the second year of the two year settlement announced in December 2010.
  • As previously announced, formula grant to all authorities will fall by a further 7.7% on top of the 9.9% fall in 2011-12. For single tier and county councils and shire districts this means that the total fall over two years will be 19.3%.
  • A transitional grant of £20m for 2012-13, benefiting 12 authoritieswhose “revenue spending power” would have otherwise have fallen by more than 8.8% has been provided.
  • Damping will continue with the floors as announced in February 2011.
  • There is no change to the amount of top-sliced academies transfer for2011-12 and 2012-13. The Department for Education have published aseparate consultation document which could lead to a separate grantbeing paid to authorities with low numbers of academies in January2013 as compensation for too much money having been top-sliced fromtheir budget.
  • Council Tax Referendum thresholds for 2012-13 have been announcedas 3.5% for single tier, county councils and shire districts, 4% for policeand fire authorities and the GLA and 3.75% for the City of London.
  • These are 1% above the figures for which the one year freeze grant for12-13 will be paid.

LGA key messages

  • Today's settlement announcement confirms that local government continues to bear the brunt of public spending cuts in this Spending Review period. The Autumn Statement proposes that cuts will continue at least until 2017. The time has come to turn the spotlight back on Whitehall departments which have thus far been sheltered from the worst of the cuts.
  • Business rates income now exceeds formula grant earlier than expected. This highlights the significance and the unfairness of the Treasury's proposal to "set aside" business rates income to fund the Exchequer from 2013.
  • It should be for local people to determine whether they find a suggested council tax increase “excessive”, rather than the Secretary of State decreeing what constitutes “excessive” from the centre. If local referendums are to be truly localist, they should be triggered only at the behest of local people.
  • The Government’s shift on the academies top-slice is welcome, but concerns remain about the future mechanism for funding school support and about the incentives the Government is creating for councils which wish to encourage new academies.

Settlement in detail

Formula grant

  • Formula grant for 2012-13 is as set out in the provisional settlement announced in January 2011. However the council tax freeze grant for 2011-12 (£652m) has been added to formula grant for 2012-13. Without this the distributable amount would be higher than formula grant.

Damping arrangements

The table sets out the damping arrangements for formula grant in 2012-13

Education / Social Services / Shire Districts / Police / Fire
2012-13
Floor
Single floor / -6.703% / -3.4%
Band 1 - most dependent / -7.4% / -11.2%
Band 2 / -8.4% / -12.2%
Band 3 / -9.4% / -13.2%
Band 4 - least dependent / -10.4% / -14.2%

Transitional Grant

  • In addition to formula grant, the government will pay a transition grant of £20m to those authorities worst hit by the settlement. The transitional grant will be paid to 12 authorities in 2012-13.
  • This will mean that no authority has a reduction in ‘spending power’ (defined as formula grant plus council tax plus some specific grants) of no more than 8.8%.
  • The Government says that the average reduction in ‘spending power’ is 3.3% in 2011-12.

Business rates

  • The distributable amount of Business Rates will be £23.1bn, compared with £19bn in 2010-11, an increase in £4.1bn. CLG have put a statement on their website explaining this increase.
  • The national non-domestic rate multiplier will go up by 5.6% to 45.0p. There will be a similar increase for small businesses.

Council tax

  • As previously announced there will be a grant for councils who freezetheir council tax in 12-13. This grant will be paid for one year only. It willamount to an increase of 2.5% for single tier, county councils anddistrict councils, 3% for police and fire authorities and the GLA and2.75% for the City of London.
  • The Government have also announced the thresholds over which councils will have to have referendums under the 2011 Localism Act. These are 3.5% for single tier, county councils and shire districts, 4% for police and fire authorities and the GLA and 3.75% for the City of London.

New Homes Bonus

  • Provisional amounts for the New Homes bonus for 2012-13 havealready been announced by CLG – a total of £431m. This will be fundedthrough £250m in specific grant and £181m in top-sliced formula grant.However the top-slice of £176m from 2012-13 formula grant remainsunchanged; the LGA understands that the balance will be taken fromthe provision in 2013-14.

Schools and Children’s Services Funding

  • DfE will be making a separate statement in the next few days on theDedicated Schools Grant and Pupil Premium for 2012-13. This isexpected to be in line with the spending review figures alreadyannounced with the Guaranteed Unit of Funding within the DSGremaining at flat cash per pupil.
  • The Early Intervention Grant, as previously announced will be £2.365min 2012-13. This is an increase of 5.9% when compared with thecomparable figure in 2011-12. However this has to be set against areduction of 25% in 2011-12 when compared against the comparablefunding streams from 2010-11.
  • £148m in 2011-12 and £265m in 2012-13 is still being removed fromformula grant to pay for central education functions for academies.Following their consultation in the summer, DfE have issued a newconsultation document. This proposes:
  • No change for 2011-12, the top-slice would remain £148 million.
  • For 2012-13, the top-slice from formula grant will remain at £265million (so a total top-slice of £413m over the two years). However,a new methodology will be used to calculate individual authorities’contributions. Where an authority has had more money taken awaythan the new methodology suggests they should have, that authoritywill receive some funding back in the form of a specific grant. Thegrant would be paid in early 2013.
  • Where the new methodology assesses that an authority should havecontributed more to the top-slice there will be no adjustment –meaning no council will be worse off than current levels as a result.
  • The new methodology proposes a reduction in the national “perpupil rate” from £220 per pupil to £156 per pupil. Individual localauthority calculations would be based on the actual number of pupilsin academy schools in January 2013, and so the calculation will notbe known until January 2013.
  • The DfE says they and CLG will consult in 2012 on futurearrangements; this could include removing the services from formulagrant into the DfE budget, as part of the Local GovernmentResource Review.

LGA View

  • It is difficult to quantify the amount councils could expect to receive through the special grant for 2012/13 as this will be based on January 2013 numbers.
  • The new methodology is likely to benefit councils with fewer academies so long as the numbers remain low in January 2013. Councils that have supported the Government’s roll out of the academies programme are unlikely to benefit.
  • The “per pupil rate” has been reduced from £220 to £156. However this is still significantly higher than the rate which comes out of the costing exercise carried out by the LGA over the summer. This suggests that the maximum unit cost should be in the region of around £50.
  • The new methodology is still not based on demonstrable savings to councils where schools have converted to Academy status.
  • The LGA would be concerned if any future arrangements under the Local Government Resource Review removed more money from councils than they were spending. This would not be in line with the Government’s own New Burdens Doctrine.

11