Memorandum by Town and Country Finance
Issues Group (TACFIG) (LGB 13)
TO TACFIG AND
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rural communities are no longer valid.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. RESPONSE TO
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 paperStrong
Local LeadershipQuality Public Services (published December
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 authoritiesnothing 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
paperStrong Local LeadershipQuality 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
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.