Local Government Finance Settlement 2023-24, January 2023

  • By Amy Leppänen

Overview

The Provisional Local Government Finance Settlement was published on 19 December. The settlement confirms the distribution of funding for London boroughs in 2023-24. This briefing summarises London Councils’ response to the government’s consultation on the settlement and updates London MPs and Peers on our key asks.

The £740m increase (9.2% increase) in funding next year for London boroughs (in line with the England average) will help to reduce the overall funding gap boroughs had been facing. However, high inflation and increased demand for council services following the pandemic and the ongoing cost-of-living crisis means boroughs will still need to make savings of at least £100m next year to balance budgets.

The funding uplift follows a period of significant funding reductions, which have contributed to the severe pressures facing local services. London boroughs’ overall resources will be 18% lower in real terms compared to 2010-11, even though there are now approximately 800,000 more Londoners than in 2010.

Although London Councils appreciates the confirmation of the majority of funding streams for 2024-25, the provisional settlement is the fifth single-year settlement in a row. This severely hinders medium-term planning and strategic investment in services – particularly investment in prevention and invest to save programmes. We continue to urge the government to deliver a medium-term funding settlement for London boroughs.

Impact of key announcements for London local government

  • We welcome the £740m increase (9.2% increase) in core spending power (CSP) – the government’s measure of overall core funding – for London boroughs from £8.01bn to £8.75bn. However, despite the overall increase, CSP will remain 18% below 2010 levels in real terms for London boroughs (13% across England).
  • Given the cost of living pressures facing residents, it is disappointing that a third of the total increase in funding (£240m) is predicated on all boroughs raising council tax to the maximum permitted level (5%). Imposing greater council tax increases during the current cost-of-living crisis will be a challenging decision for many authorities. It may also lead to cost-shunting as more residents may apply to local council tax support schemes, social housing and homelessness services.
  • The funding uplift will particularly boost support for adult social care (ASC). £555m in London will come from an increase to ringfenced funding for social care in 2023- 24, including almost £140m of new funding to support ASC discharge and market sustainability.
  • The government has continued to distribute the Social Care Grant (SCG) using a formula that only reflects ASC need rather than including children’s social care, despite councils being able to spend the funding on both. London Councils estimates boroughs will lose out on around £153m as a result in 2023-24, and a cumulative £591m by 2024-25 since the SCG began in 2017-18.
  • The New Homes Bonus has been rolled forward for a fourth year, continuing to decrease with no decision made on its future since the government consulted on options for reform two years ago.
  • Extra funding for the Homelessness Prevention Grant (HPG) has been found for 2023-24 and 2024-25 to ensure that no authority is worse off from the reforms. However, London Councils is concerned that reforms to the HPG will see London’s share of the grant reduce in future years at a time when homelessness crisis is growing disproportionately in London.
  • While outside the core settlement, the funding shortfall in the High Needs block of the Dedicated Schools Grant (DSG) has become the single biggest financial pressure for some London boroughs. Three quarters of boroughs are likely to be carrying DSG deficits, totalling £300m, by the end of 2022-23. While the extension of the statutory override to 2025 is welcome, this doesn’t solve the problem or help close deficits in the short term. Boroughs remain very concerned about the knock on consequences for council budgets if this isn’t resolved by the DfE.

London Councils’ call to MPs and Peers

  • We support the government’s decision to postpone ASC funding reforms until 2025, given their complexity and extent of the current pressures, and the repurposing of earmarked funds to help with ASC demand pressures. We urge the government to ensure this funding remains in the baseline for future years, and that any new reporting requirement on funding for discharge pressures are light touch.
  • Like adult social care, children’s social care services in London are under immense pressure. However, the distribution of the Social Care Grant only reflects relative adult social care needs rather than children’s social care needs. As more funding is channelled through this grant (£4.5bn by 2024-25) this is increasingly inequitable. London Councils is calling for children’s social care needs to be reflected in the distribution for the final settlement and encourages London parliamentarians to raise this with Ministers.
  • London Councils is calling on the government to confirm its intentions for the New Homes Bonus beyond 2023-24 as soon as possible. The grant must be reformed to better incentivise house building in areas of the country facing the greatest housing pressures, which includes London.
  • Local authorities need certainty over how they will be resourced. This is the fifth one-year funding settlement in a row since 2019-20 and despite most of the government’s funding intentions for 2024-25 being set out, there are still some uncertainties over funding for that year. We continue to urge the government to deliver medium-term (at least three-year) funding settlements for London boroughs and deliver on the commitment made following the Hudson Review in 2018 to publish the provisional settlement in the first week of December this year. We also urge the government to publish Public Health Grant allocations as soon as possible as these were not published alongside the settlement.
  • More broadly, the government has again opted for short-term sticking plasters rather than deliver any meaningful long-term solutions. Reform to funding needs assessments and business rates baselines will not be implemented before 2025-26. This causes continuing uncertainty and prompts questions about the fairness of formulae unchanged since 2013-14. We urge the government to work closely with the sector in the next two years to ensure funding reforms can be delivered as soon as possible in the next parliament.
  • London Councils wants to see significant reform of local government finance so that boroughs have more resource-raising powers and are less reliant on council tax and central government grants. Boroughs are grateful for anything MPs and peers can do to push the government on new policy solutions to ensure local government can be funded in a sustainable way.
Amy Leppänen, Parliamentary Officer