PAPER E3
Purpose :
For Decision
Committee : EXECUTIVE
Date : 30
JULY 2002
Title : REVIEW OF THE REVENUE GRANT
DISTRIBUTION SYSTEM AND THE GOVERNMENT’S EXPENDITURE PLANS TO 2005/6
PORTFOLIO HOLDER -
RESOURCES
1. On 8 July the
Government published its paper setting out options for the reform of the
Revenue Grant Distribution System as part of the programme outlined in the
White Paper on Local Government.
2. The broad thrust
of the proposals is a significant transfer of resources from the South East of
England to Northern and inner urban areas.
3. In more detail
the Government has published options for 12 expenditure blocks, either in
service areas such as Education and Social Services or in respect of cross
cutting issues such as Area Cost Adjustment or capital financing.
4. One feature of
the proposals is a fundamental review of the Area Cost Adjustment system which
could in its worst option produce lost grant of £9m to this authority. This is because of the spread of the system
beyond the South East, the need for all authorities to contribute to gainers as
well as the loss of benefit to the Isle of Wight from the proposal.
5. The individual
options produce a wide range of variations for this authority as well as for
many others. If each of the best
options of this authority is chosen, the effect would be a gain in resources of
£2.6 million, equivalent to over a 6% reduction in Council Tax.
6. At the other end
of the spectrum, the sum of the worst cases amounts to a loss in resources of
over £13 million including Area Cost Adjustment, equivalent to over 30%
additional Council Tax purely in relation to a change in the system without
including any extra costs arising from service pressures or inflation.
7. The options
relating to individual blocks are summarised in the appendix.
8. The effect of
any changes may well be offset by the application of floors and ceilings to
resource changes, thereby smoothing the effect over several years – for
instance by perhaps setting an annual floor of say 3% on grant increases or a
ceiling of 11%. The ultimate effect
would, nevertheless, be unchanged although delayed.
9. The Government
is consulting on its proposals and may ultimately adopt any of the proposals or
different options. Therefore figures
will inevitably change, as they will additionally change to take account of
data changes and the Government’s spending review before the RSG Settlement in
late November or early December.
10. The consultation
process requires comments by 30 September.
The course of action proposed is to:-
i make a case for the costs of being an island authority based on the current Price Waterhouse Coopers study which is nearing completion
ii continue our alliance with the other South East authorities to press for retention of the present Area Cost Adjustment benefits
iii make our own comments on details of the formula following detailed examination.
The government’s expenditure plans to
2005/6
11. On
15 July the Chancellor of the Exchequer published his expenditure plans for the
period until 2005-06. This report sets
out the main points of the report and the implications for the broad totals of
local government expenditure.
12. Some of the main
points of the review are:-
·
total government spending is to rise from £240 bn this year to £301 bn
in 205/6
·
spending on Education will increase from £45 bn to £58 bn over the next
three years
·
extra cash to go direct to schools
·
a £5.9 bn new home building programme in 2005/6 (current year £4.8 bn)
·
new homes for key workers in the South
·
an increase in defence and foreign aid spending
·
an increase from £10 bn to £13
bn per annum in the Home Office budget by 2005/6
·
£38 m more for sustainable energy programmes
·
pensioner credits for nearly half of all pensioners
·
every three and four year old to have a nursery place by October 2004
·
confirmation of the spending increases announced in the April 2002
budget in respect of Social Care
These are headline points and inevitably detailed examinations and announcements by individual departmental ministers will reveal further details.
13. It
seems inevitable that many of the increases will come with targets and
conditions or extra responsibilities.
It is also not immediately clear how much of the additional resources
will be ring fenced grants.
14. However
the government has published its plans for the total of local government
Standard Spending Assessments (ie the part of local authority revenue
expenditure which is not met by ring fenced or specific grants). The table below shows those totals for
England. Individual authority figures
will not be known until the proposed RSG Settlement is announced in late
November or early December.
SR2002
(July 2002) Key Numbers (£ million)
|
Standard
Spending Assessments |
2002-2003 |
2003-2004 |
2004-2005 |
2005-2006 |
|
Education |
22,503 |
23,928 |
25,285 |
26,828 |
|
Personal
Social Services |
9,231 |
10,023 |
10,715 |
11,856 |
|
Police |
3,577 |
3,995 |
4,195 |
4,395 |
|
Fire |
1,521 |
1,583 |
1,653 |
1,703 |
|
Highway
Maintenance |
1,955 |
2,005 |
2,055 |
2,105 |
|
Environmental,
Protective and Cultural Services |
8,961 |
9,435 |
9,703 |
10,024 |
|
Capital
Financing |
2,224 |
2,648 |
2,838 |
3,323 |
|
Total
of Standard Spending Assessments |
49,972 |
53,616 |
56,443 |
60,233 |
|
Net
Aggregate External Finance |
36,774 |
39,596 |
41,552 |
44,432 |
|
Locally
Financed |
13,198 |
14,020 |
14,891 |
15,801 |
|
Standard
Spending Assessments |
2002-2003 |
2003-2004 |
2004-2005 |
2005-2006 |
|
Education |
22,503 |
6.3% |
5.7% |
6.1% |
|
Personal
Social Services |
9,231 |
8.6% |
6.9% |
10.6% |
|
Police |
3,577 |
11.7% |
5.0% |
4.8% |
|
Fire |
1,521 |
4.1% |
4.4% |
3.0% |
|
Highway
Maintenance |
1,955 |
2.6% |
2.5% |
2.4% |
|
Environmental,
Protective and Cultural Services |
8,961 |
5.3% |
2.8% |
3.3% |
|
Capital
Financing |
2,224 |
19.1% |
7.2% |
17.1% |
|
Total
of Standard Spending Assessments |
49,972 |
7.3% |
5.3% |
6.7% |
|
Net
Aggregate External Finance |
36,774 |
7.7% |
4.9% |
6.9% |
|
Locally
Financed |
13,198 |
6.2% |
6.2% |
6.1% |
(all figures are adjusted for transfers since Spending Review 2000. The figures for Police for 2002/03 are net of a transfer of £262m to specific grant; this is included in SSA figures for 03/04)
15. In cash terms the biggest increase is in Education (19% over 3 years). The most significant other increases are 28% over 3 years for Personal Social Services and 22.8% for Police. Disappointingly, Fire, Highway Maintenance, Environmental Protection and Cultural Services show relatively low increases.
16. How this affects this Council will be determined by the outcome of the consultation process for the revised grant formula to distribute funds amongst local authorities. This is the subject of a separate report elsewhere on the Agenda. The Medium Term Financial Plan, also on the Agenda takes account of the resource implications of the plans and shows the effect of a range of outcomes of that process.
17. The outcomes that are achievable for any given sum of money will of course also depend on the level of public sector pay and price inflation.
Recommendations
1 To adopt the process set out in paragraph 10 in respect of the Review of the Revenue Grant Distribution System, and
2 To note the government’s spending plans and to take their implications into account in the budget process.
Contact point: John Pulsford tel: 823601
|
JOHN PULSFORD Strategic Director Finance and Information and County Treasurer |
R R BARRY Portfolio Holder for Resources |