Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Town and Country Finance Issues Group (TACFIG) (LGB 13)



  The Town and Country Finance Issues Group (TACFIG) is an all-party group of authorities that have both urban and rural characteristics. It was formed in 1998 specifically to address the severe imbalance in revenue grant funding that its member authorities experienced and their concern about the disadvantage to their communities as a consequence. Our aim is to seek reform of the Central Government grant system for local authorities so that it more accurately reflects the actual cost of providing a standard set of council services and encourages best value and better outcomes for our communities. We believe that the present system fails to recognise the reality of social and economic need in many shire areas and, in particular, those areas that have a mixture of urban and rural characteristics.

1.2  All-Party Town and Country Group

  The All Party Town and Country Group was launched in April 2000 to campaign for a fairer deal for town and country communities and it has generated interest from over 90 MPs from across the political spectrum. The Group has close links to TACFIG. We are also supportive of the work of the Shire Districts Liaison Group, of which TACFIG is a key member.

1.3  What are we calling for?

  We have actively engaged with Government throughout the Review of local government finance and have responded to each of the consultations. In particular, we have called for the following:

    —  A grant formula, which is simple, yet addresses the needs of all classes of authority, and is transparent and understandable to local communities.

  We welcome the abolition of the standard spending assessment (SSA). Local communities throughout England are complex and previous assumptions about the level of need in urban and rural communities are no longer valid. Whilst no one would challenge the notion that many of our urban areas are in desperate need of regeneration, we also need to recognise that in many shire districts there are considerable pockets of deprivation and additional costs caused by serving dispersed rural communities. Resident population needs to be a key driver in any formula.

    —  We would like to see an equal annual grant for each local authority to cover the fixed costs of "being in business", which is distributed outside the formula so that it is a contribution to local authority central costs, funded out of RSG totals.

  The value of an equal annual grant has been recognised by PriceWaterhouseCoopers (PWC), in the DETR sponsored report into local authority fixed and variable costs and their implication for local authority revenue grant distribution. This report recognised the proportionately higher core corporate costs incurred by district councils because they do not have the resource base that larger councils have. The report also noted the important community role that district councils perform.

    —  Direct involvement of districts in local Public Service Agreements (PSAs).

  Whilst we welcome the introduction of local Public Service Agreements, it is essential that there is direct involvement for district authorities in the PSA framework. At present districts' involvement depends on a successful working partnership with county councils, yet districts are the tier of local government that is closest to the community and therefore more responsive to the needs of the community.


2.1  Clause 29 (1)

  1.  TACFIG and the All-Party Group are opposed to the merging of revenue support grant (RSG) and the redistribution of national non-domestic rates (NNDR) into a new grant to be known as "formula grant".

  2.  This proposal, to merge RSG and redistributed NNDR, was not the subject of consultation in the Department of the Environment, Transport and the Regions' (DETR) Green Paper on Local Government Finance (published September 2000); nor was the idea introduced in the local government white paper—Strong Local Leadership—Quality Public Services (published December 2001).

  3.  The proposal made in Clause 29 (1) is justified in the explanatory notes, on the grounds that it will "improve the intelligibility and transparency of the grant system". TACFIG and the All-Party Group cannot see how it could make the grant system simpler. NNDR is already redistributed on a simple and transparent basis (every authority receives the same amount per head of resident population). The basis is so simple that the formula is set out in a few words in Schedule 8, Paragraph 9 of the Local Government Finance Act 1988. In contrast, the formula used to distribute RSG is extremely complex and determined by the Secretary of State. Should RSG and redistributed NNDR be merged, the resulting formula grant will be distributed by a formula likely to be almost as complicated as the existing standard spending assessment (SSA) rather than one as simple as the NNDR formula.

  4.  The explanatory notes to the bill refer to the merging of two grant streams. It is our view that redistributed NNDR is not a grant to local authorities—nothing in the Local Government Finance Act 1988, or subsequent regulations, refers to it as such. Redistributed NNDR is, as its name implies, a redistribution to local authorities of a national pool of business rate income, where before 1989 authorities would have set their own business rate and collected and kept such income locally.

  5.  It is also our view that the implementation of the proposal will break any link between what local businesses pay and what local authorities receive. The local government white paper—Strong Local Leadership—Quality Public Services said (in Part II Paragraph 8.4) that there was scope for more work and discussion on the balance between national and local taxes and the impact that this has on local authorities' autonomy. It was our understanding that this discussion would include the option for business rates to become a locally raised tax again. Implementation of the proposal in Clause 29 (1) pre-empts that discussion.

  6.  The explanatory notes to the bill say that this proposal will have "no effect on the total amount of Government support and almost no effect on the amount of support which each authority receives". Looking at current figures, there are six shire district authorities that would lose financial support if this proposal were already implemented; five of those six authorities are members of TACFIG. These authorities all currently have a negative RSG entitlement and therefore receive no RSG, but this has no impact on the amount of redistributed NNDR they receive. Under the proposal made in Clause 29 (1) the six authorities would have their entitlement to redistributed NNDR reduced.

  7.  There are several other shire district authorities that currently receive very small and decreasing amounts of RSG; these authorities fear that the proposal made in Clause 29 (1) will further erode their financial support.

  8.  Under current legislation all monies raised from NNDR are earmarked for local government and there must be a risk that ending the present arrangement may see some of that money being used for other purposes.

2.2  Clause 29 (2)

  9.  TACFIG and the All-Party group are disappointed by the confusion that surrounds the issue of when arrangements for the funding of local authorities will change. This clause is very clear that the provisions set out in this chapter would have effect from 1 April 2004. However, we are separately informed that the new formula (which the Secretary of State will use, under powers that would be given by Clause 31, to distribute "formula grant") will be effective from 1 April 2003.

  10.  We are further disappointed that the details of the formula which will be used to determine local authorities' funding from 1 April 2003 are not yet available. We are concerned that even when details are made available there will be no exemplifications against which authorities can evaluate the impact of the proposals on their funding.

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