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REPORT OF THE CITY TREASURER
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TO BUDGET SCRUTINY COMMITTEE,
9th JANUARY, 2008
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TITLE: PROVISIONAL FORMULA GRANT SETTLEMENT 2008/09 – 2010/11
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RECOMMENDATIONS: Members are invited to comment on the contents of this report.
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EXECUTIVE SUMMARY:
This report provides details of the provisional formula grant settlement announced by the Local Government Minister on 6th December 2007 and the implications for Salford.
The provisional settlement provides details of the formula grant for the three years 2008/09 to 2010/11 and provides a firm basis for medium-term financial planning.
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BACKGROUND DOCUMENTS:
DCLG letter dated 6th December entitled : “Local Authority Finance (England) : Revenue Support Grant for 2008/09, 2009/10 and 2010/11 and Related Matters”
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ASSESSMENT OF RISK:
The risk of variation in grant settlements has been reduced by the introduction of 3-year settlements by DCLG.
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SOURCE OF FUNDING: Revenue Budget
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LEGAL IMPLICATIONS: None specifically arising out of this report
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FINANCIAL IMPLICATIONS:
The provisional grant settlement enables Salford’s detailed budget plans to be fine-tuned to produce a budget for 2008/09 and provisional plans for 2009/10 and 2010/11 within the resources available from Government and local council taxpayers.
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VALUE FOR MONEY IMPLICATIONS:
Value for money considerations will be taken into account in determining the detailed spending plans for the Council.
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HUMAN RESOURCES:
There will be consequential impacts upon the HR strategy that will need to be assessed further.
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CONTACT OFFICER: John Spink Tel : 793 3230
E-mail :
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WARD(S) TO WHICH REPORT RELATES: Potentially all
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KEY COUNCIL POLICIES: Budget Strategy
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REPORT DETAILS
1. INTRODUCTION
Members have previously received a briefing note on this matter. This report repeats much of the information contained in that briefing but also builds upon it by providing more extended and up-to-date detailed information.
The details of the provisional Formula Grant settlement for 2008/09 to 2010/11 were announced for consultation by the Local Government Minister on 6th December and are set out below.
2. NATIONAL HEADLINE PICTURE
Total Aggregate External Finance (AEF) increases by 4%, 4.4% and 4.3% respectively over the 3 years. Within this, Formula Grant increases by 3.6%, 2.8% and 2.6%. Specific grants increase by 3.9%, 4.9% and 4.8%. Details are shown in the table below.
2008/09 / 2009/10 / 2010/11£bn / % / £bn / % / £bn / %
Business Rates (NNDR) / 20.500 / + 10.8 / ) 24.001 / + 2.8 / ) 24.622 / + 2.6
Revenue Support Grant (RSG) / 2.909 / - 28.4 / ) / )
Formula Grant / 23.409 / + 3.6 / 24.001 / + 2.8 / 24.622 / + 2.6
RSG for specified bodies / 0.056 / 0.050 / 0.050
PFI / 0.677 / 0.853 / 1.069
Net Aggregate External Finance / 24.086 / + 4.2 / 24.904 / + 3.4 / 25.741 / + 3.4
Specific Grants / 46.322 / + 3.9 / 48.580 / + 4.9 / 50.930 / + 4.8
Total Aggregate External Finance / 70.408 / + 4.0 / 73.484 / + 4.4 / 76.671 / + 4.3
For 2008/09, the NNDR component increases from £18.5bn in 2007/08 to £20.5bn, an increase of £2bn or 10.8% reflecting the buoyancy in business rates from extra revenue from empty property rates and not paying out anything for LABGI, whilst the baseline RSG component for 2007/08 is reduced from £4bn to £2.9bn, a reduction of £1.1bn or 28%. Thus, DCLG has clawed back a minimum of £1.1bn from local authorities of the increase in business rates revenue.
These figures are in line with the CSR announcement.
Floor damping has been set for education and social services authorities at minimum grant increases of 2%, 1.75% and 1.5% respectively for the 3 years.
3. GRANT SETTLEMENT FOR SALFORD
Formula Grant increases by 3.6%, 2.4% and 1.8% respectively. This is at the national average for 2008/09, but significantly below it for 2009/10 and 2010/11. Details are shown in the table below.
Formula Grant / Increase£m / £m / %
2007/08 Formula Grant / 115.652
Other Function and Grant Transfer Adjustments
- Delayed Discharges Grant / 0.567
- Access and Systems Capacity Grant / 3.181
- Waste Performance and Efficiency Grant / 0.235
- Children’s Services Grant / 1.078
- other minor grant transfers / 0.033
+ 5.094
2007/08 Adjusted Formula Grant baseline / 120.746
2008/09 Formula Grant / 125.118 / 3.6
Function Transfer Adjustments
- Student Awards / -0.065
2008/09 Formula Grant adjusted baseline / 125.053
2009/10 Formula Grant / 127.993 / 2.4
Function Transfer Adjustments
- Student Awards / - 0.024
2009/10 Formula Grant adjusted baseline / 127.969
2010/11 Formula Grant / 130.258 / 1.8
Salford does not get the full benefit of its Formula Grant increase due to floor damping to protect those authorities who lose out or get minimal increase. Salford’s Formula Grant would have been higher by £3.5m, £1.9m and £0.9m respectively over the 3 years without the floor damping scheme.
4. GREATER MANCHESTER COMPARISON
In Greater Manchester, grant increases for 2008/09 range between 2% (Trafford) and 6.4% (Oldham). Bolton, Rochdale, Tameside and Wigan all get above 5%. Salford’s is the 7th highest of the 10 districts. Fire get a 2.1% increase, Police 3%.
In 2009/10, increases range from 1.8% (Trafford) to 4.1% (Oldham). Salford is the 9th highest. Fire get 1.2%, Police 3%.
In 2010/11, increases range from 1.5% (Trafford) to 3.5% (Oldham). Salford is the 9th highest. Fire get 1.2%, Police 3%.
Salford has therefore faired worse than average in Greater Manchester in 2008/09 and poorly for the following 2 years, ie next to worst. Comparisons with the metropolitan district and North West authority average increases show a similar picture.
Details of formula grant increases are shown in the following table :-
2008/09 / 2009/10 / 2010/11% / % / %
Bolton / 5.3 / 3.6 / 3.1
Bury / 3.4 / 2.6 / 2.3
Manchester / 3.8 / 2.5 / 1.9
Oldham / 6.4 / 4.1 / 3.5
Rochdale / 5.7 / 3.8 / 3.4
Salford / 3.6 / 2.4 / 1.8
Stockport / 3.3 / 2.6 / 2.3
Tameside / 5.6 / 3.6 / 3.0
Trafford / 2.0 / 1.8 / 1.5
Wigan / 5.7 / 3.7 / 3.1
Other comparators :-
GM Fire / 2.1 / 1.2 / 1.2GM Police / 3.0 / 3.0 / 3.0
Met districts / 4.1 / 2.9 / 2.5
SIGOMA authorities / 4.5
North West / 4.0 / 3.0 / 2.7
5. DETAILED ANALYSIS
Attached at Appendix 1 is a detailed, technical analysis and appraisal of the reasons why Salford has received a comparatively poor grant settlement.
6. SPECIFIC GRANTS
Ø Area Based Grant
A key element of the grant settlement which is of growing importance is the amount of Area Based Grant (ABG) each local authority is entitled to. This is a non-ringfenced grant, ie authorities are free to decide how it is applied and comes without conditions from Government other than it is intended to be used to deliver key national priority targets that are negotiated with regional Government offices as part of the Local Area Agreement.
The ABG comprises a number of formerly ring-fenced grants and the details of its component grants for the next three years in comparison with the 2007/08 entitlement is contained at Appendix 2.
In total, Salford will receive £23.037m of ABG in 2008/09, an overall reduction of £715k, but an increase of £403k in the revenue elements. In 2009/10, this increases to £38.620m, the main reasons being the transfer into ABG of Supporting People Grant of £13.191m from being a previously ring-fenced grant and an increase of £1.451m in the Working Neighbourhoods Fund (see below).
Ø Working Neighbourhoods Fund
This is the most significant component of the ABG. Salford’s entitlement is :-
2008/09 2009/10 2010/11
£m £m £m
8.693 10.144 10.493
The Working Neighbourhood Fund (WNF) replaces NRF, which in 2007/08 was £9.308m. Grant in 2008/09 therefore represents a £615k or 7% reduction.
The increase in 2009/10 appears quite substantial at £1.451m or 16.7%, but there are plans for the DWP to transfer its Deprived Areas Fund into WNF and it appears that allowance may have been made within the 2009/10 grant for this. Also, there has needed to be transitional arrangements made in 2008/09 to give some measure of protection to those authorities previously in receipt of NRF who will no longer receive WNF because of targeting it more at deprived wards, which means that this transitional protection ends in 2009/10 allowing more grant to be released to the fewer authorities entitled to it.
The reduction in WNF compared with NRF in 2008/09 can be managed as there are a number of projects for which one-off funding was provided in 2007/08 which will naturally come to an end.
Ø Social Care Reform Grant
This is a ring-fenced grant and separate from the ABG outlined above. Salford’s entitlement is :-
2008/09 2009/10 2010/11
£m £m £m
0.464 1.077 1.317
This is a new grant towards the demographic pressures in adult social care. It is not yet clear whether or not this is a ring-fenced grant and what conditions may be applied to it, but we need to assess how this grant is to be used in the context of spending pressures and commitments in the adult social care services.
7. FORMULA GRANT CONSULTATION RESPONSE
Local authorities have until 8th January to make representations on the provisional grant settlement.
It is proposed that a response will be agreed with the Leader of the Council and Councillor Hinds at their briefings on 7th January and a copy of that response will be tabled at this meeting.
The focus of the consultation response will be :-
Ø Welcoming the certainty of the 3-year grant settlement ;
Ø Welcoming the flexibility of the increasingly non-ringfenced Area Based Grant and the intention of Government to widen its scope ;
Ø Concern at the clawing back of £1.1bn from the increase in business rates revenue, following on from £1bn also being clawed back in 2007/08 ;
Ø Concern at the cessation for one year of LABGI before starting up with a revised scheme and much less funding in 2009/10 ;
Ø Disappointment that two different population bases are used in the formula grant calculation and the one that is used more widely is the more out-of-date and works to the detriment of Salford.
RECOMMENDATION
Members are invited to comment on the contents of this report.
JOHN SPINK
City Treasurer
Appendix 1
2008/09 PROVISIONAL FORMULA GRANT SETTLEMENT
REASONS FOR POOR SETTLEMENT
Appendix 1(a) attached provides an analysis of the reasons for formula grant changes between resource equalisation, methodology, control totals and data changes, as calculated by the DCLG. These changes are to formula grant prior to damping.
Overview
In 2008/09, Salford fairs :-
Ø Reasonably well on resource equalisation (4th highest) – expected
Ø Poorly on methodology (2nd lowest)
Ø Poorly on control totals (3rd lowest)
Ø Reasonably well on data (4th highest)
In 2009/10 and 2010/11, Salford fairs poorly on both control totals and data, which are the only two variable factors for those years, although the range for the change in control totals is narrow, leaving the main variable factor that has influenced Salford’s low formula grant increase as being data.
Resource Equalisation
In 2008/09, DCLG changed the formula for resource equalisation by increasing the relative needs factor by 2% from 71% to 73% and reducing the relative resources factor by 2% from -24.6% to -26.6%. The central allocation, which is based upon population, remained unchanged at 53.6%.
The shift towards need and away from resources is a natural advantage to Salford because it is a high need, low resource authority. This is borne out by the actual shares Salford receives of the 3 elements making up formula grant, whereby its needs amount is higher than the national average and the resources a lesser negative adjustment, as indicated in the following table :-
2008/09 Grant / Proportion of Total£ / %
Relative Needs Amount / 100,639 / 78.2
Relative Resources Amount / -12,211 / -9.5
Central Allocation / 40,196 / 31.3
128,624 / 100
Floor Damping / -3.507
Total Formula Grant / 125,117
Methodology
In 2008/09, the poor showing on methodology would appear due to the removal of floor damping on the personal social services blocks. When the DCLG consulted on formula grant changes during the summer they identified that removal of the PSS floor damping would cause a loss to Salford of £0.5m. An alternative option to reduce damping by 10% which would have resulted in a gain of £0.6m was not implemented.
The biggest gainers in GM benefited from the removal of PSS floor damping, eg Wigan £7.4m, Bolton £4.2m, Rochdale £3.2m, Tameside £3m, Bury £2.5m, Oldham £2.5m. All GM authorities bar Salford gained from the removal of PSS floor damping.
Control Totals
In 2008/09, the poor showing on control totals would appear due to the combined effect of a range of formula changes. When the DCLG consulted on formula grant changes during the summer they identified the following options and impact on Salford :-
Ø Adult PSS revise low income adjustment – impact : loss £0.3m –implemented
Ø Highway maintenance – update data – impact : loss £0.3m – implemented
Ø Area Cost Adjustment – update rates and labour costs adjustments – impact : loss £0.1m – implemented
Ø Data updates – impact : loss £0.1m – implemented
The total combined loss of these changes is £0.8m, or 0.7% of total formula grant. The increase in control totals for metropolitan districts is 5.6%, whilst Salford’s increase is 4.4%. Whilst there may be other variables also operating against Salford, the formula changes are the main cause. The formula changes generally benefited GM authorities more than Salford, with Oldham, Wigan, Rochdale, Tameside and Bolton fairing the best.
Data
Population data is at the root of the calculation of the 3 elements of formula grant, ie needs, resources and central allocation. It is also at the heart of some of the more detailed sub-elements.