Cuts, cuts, cuts – the issues

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Cuts, cuts, cuts – the issues. Spending squeeze on public sector means council grants from Govt. being cut by 28% over four years Public angry over cuts to services and closures of facilities and job losses “Democracy dodgers” – councils defying Govt. call to freeze council tax - PowerPoint PPT Presentation

Transcript of Cuts, cuts, cuts – the issues

  • Cuts, cuts, cuts the issuesSpending squeeze on public sector means council grants from Govt. being cut by 28% over four yearsPublic angry over cuts to services and closures of facilities and job lossesDemocracy dodgers councils defying Govt. call to freeze council tax Demand for many council services increasing putting extra pressure on budgets People on benefits now having to pay council tax for first time

  • Revenue expenditureEssentially, a councils day-to-day running costs necessary to provide servicesIt covers:Employees payRepair and maintenance of land and buildingsPayments to contractors or suppliersGrants to organisations

  • Capital expenditureSpending on building things like:Building new schoolsRoadsFacilities like sports centres/librariesMajor items of equipment (eg IT)

    Large capital projects usually cover three to five year periods spread the costs

  • The Council Tax (funds revenue expenditure)A hybrid tax based on property element and personal elementHow much you pay is based on:i) Property bands: Band D (68,000-88,000) is the average (middle band) Band H (more than 320,000 is the highest)ii) Two adults occupying property

    Decisions on bands are based on property valuations as assessed by Inland Revenue Valuation Office Agency based on property prices in 1991

  • The council taxA council tax is set by each councilResident (over age of 18) with strongest legal interest is liable to payIn two-tier areas, districts/boroughs are responsible for sending out bills and collecting paymentsCouncil tax levels must be set by full council

  • Council tax bandsBand A -
  • Discount and exemptionsSingle person households discounted by 25%Those on low incomes or benefits receive rebatesFull-time students in student accommodation; those in care homes and homeless in hostels do not payBills for second home owners may be discounted (10 to 50 per cent - at councils discretion)

  • ExemptionsProperties are exempt where:They are empty and unfurnished for more than 6 monthsEmpty and where person is in hospital or long-term careEmpty and where person is in prison

  • Council tax billsBills are made up of different precepts - another word for the council tax sum being levied - of the different charging authorities:

    In two-tier areas:County council precept (the highest amount)District/borough council precept

    In unitary areas: The unitary precept

  • Council tax billsAll council tax bills also include:Police And Crime Commissioner preceptFire authority preceptAnd if there is one:Parish or town council precept

  • How council tax has risenAverage bill 1995: 609Average bill 2012: 1,201Kent County Council bill 2012: 1,047 Medway Council average bill: 1,113 Three Kent councils are increasing bills in 2013 Tunbridge Wells, Gravesham, Canterbury

  • Is it fair?Regressive: unrelated to ability to pay; those in lower bands pay proportionately moreTougher on those on fixed incomes (pensioners)Valuations out of date wide regional variationsBills have increased above rate of inflationDoes not give councils financial autonomy or enhance accountability

  • CappingGovt. has reserve powers to cap a councils budget if deemed excessivePowers to either nominate or designateUsed to halt excessive council tax increasesCan mean councils having to issue new bills

  • New local council tax benefit schemesGovt. says councils must now arrange council tax benefit schemesBut councils say Govt. has not given enough money to do so grant has been cut by 10%Pensioners continue to be protectedBut others on welfare benefits being asked to pay council tax for first timeTypically, about 8.5% of average bill

  • ReferendumsGovt. says any increase in council tax of 2% or more should be subject to public voteMost councils evading this by increasing by less than 2% Leading to democracy dodgers complaint by Mr Pickles

  • Where the money comes fromCentral government provides the lions share of council money (approx 75 per cent) controls of purse strings

    Money from Government comes in the form of different grants (called specific and general grants)

    Spending framework for all public services set over three year period

    More specific figures come via the yearly Local Government Finance Settlement (usually November)

  • Government grantsGrants in all forms are known as Aggregate External Finance.

    This money supports:Revenue expenditureCapital expenditureHousing expenditure

  • Government grants for revenue expenditureFormula GrantsBlock grants that can be spent by council as it sees fit on revenue expenditure

    Take into account council tax base (ie how much can be raised) and how many people rely on services

  • Specific grantsGrants paid for particular services Includes bulk of money for schools (Dedicated Schools Grant - DSG)Some specific grants are ring-fenced (money comes with conditions)Some are unfenced/targeted (no restrictions)

  • Specific grants - DSGThe Dedicated Schools Grant:Provides funding for schools100% from the DfECouncils have no say in how it is spent just pass it on to schools passporting

  • Revenue Support Grant - RSGPost 2006: accounts for much smaller slice of grant aid to councils about five per cent. How much a council gets is based on:

    Relative Needs Formula (RNF) formula based on various factors: deprivation; high wage costs; tourism; commuters Relative Resource Amount (RRA) how much councils can raise from council tax. In effect, a Govt. judgement about an authoritys wealthCentral Allocation (CA) additional money based on population

  • Area based grants (ABG)Designed to encourage partnership working councils with other organisations, eg charities; businesses; neighbouring authoritiesAimed at improving efficiency; cutting costs and avoiding duplication of services45billion of ABGs has gone to councils in 2009

  • Govt. approach to revenue grantsVulnerable communities a priority deprived areas with social challengesProtection for social careCouncil tax freeze funded by extra 2.5 per cent in grants for councilsPower for residents to veto council tax increases in future years through referendums

  • Uniform business ratesPaid by occupiers of commercial and industrial properties (shops, factories, businesses)Based on rateable value of property x national multiplier (set by Government)Collected by district councils but passed to Government for redistribution (based on need)Also know as National Non-Domestic Rate

  • Relief/discounts on UBRSmall business rate relief (
  • Uniform business ratesHow formula is calculated:

    Rateable value of property x National Multiplier

    For eg, where premises have rateable value of 50,000 and multiplier is 50 pence, the UBR is 25,000

  • Fees and chargesParking Planning application feesAllotmentsLibrariesLeisure centresSocial care + others specific to councils, (eg Kent Freedom Pass fee rising to 100 in 2011)

  • Capital funding how it worksBorrowing to pay for capital schemes operates under prudential borrowing regimeCouncils decide how much they can afford to pay, taking into account how much they need to repay (impact on council taxpayers)Money may be borrowed from various sources

  • Capital projects - Prudential fundingGovt. has reserve power to limit how much can be spentSystem encourages responsibility how much can we (& taxpayers) afford?Allows councils greater freedom to decide prioritiesCould be self-financing (eg adding facility to leisure centre that pays for itself)

  • Ways of funding: The Private Finance Initiative - PFIPrivate consortium pays upfront for project in a contract with councilBuilding/facility is leased back to council Costs paid off by council over period of between 20-30 years (plus interest) after which council retains ownership

  • PFI advantages/disadvantagesGood:Risks taken by private contractorEnables council to get scheme built more quicklyLess good:Risk of contractors underbidding for contracts and then foldingInterest costs hike up eventual overall billCouncil ends up after agreement period with relatively old asset

  • Public Works Loan BoardExecutive arm of the TreasuryEnables councils to borrow money more cheaply than if they went to the City or banking institutionsBoard approves loans only if satisfied loans can be repaidCollects the repayments, which include interest (usually lower than elsewhere)Money drawn from National Loans FundOverseen by 12 commissioners

  • Capital receiptsSale of assets, eg land, buildings, housingOne-off money: once spent, its gone!Some money from any sale must be pooled given to the government, which redistributes itHow much is pooled varies according to how much is raised can be 50 per centCan prove controversial (eg playing fields, allotments to developers)

  • Other capital sourcesMoney from income raised by rents, fees and charges (eg leisure centres; library charges; fees for planning applications; parking; school meals)Councils raised 10.8billion from charges in 2006-07 equal to 210 per personIncome from fees/charges usually relatively small when compared with other sources

  • Other capital grantsCentral govt - through national schemes, such as Single Regeneration Budget, Sure StartEuropean Union via structural funds (usually to deprived/disadvantaged regions) Objective One and Objective Two statusNational Lottery