Local Government Finance Settlement 2020-21

On 6 February 2020, the Government published the final Local Government Finance Settlement for 2020-21. This lays out the Government’s proposals for funding local authorities in England in the coming financial year through central grants and redistribution of business rates. A motion to approve the Settlement will be debated in the House of Commons on Monday 24 February.

The final settlement follows a technical consultation in September 2019, and a provisional settlement that was published on 20 December 2019. The policy proposals in the final settlement are largely unchanged from those in these earlier proposals, and are (in summary):

• An expanded social care grant totalling £1.5 billion;
• Core settlement funding grants to local authorities remain the same as in 2019-20, uprated in line with the change to the business rates multiplier (which is itself linked to inflation);
• Most council tax referendum thresholds are set at 2%, with an extra 2% for authorities responsible for social care services;
• £907 million of funding for the New Homes Bonus;
• An Improved Better Care Fund at the same levels as in 2019-20;
• Most pilots of 100% or 75% business rates retention will end;
• £80 million for the Rural Services Delivery Grant.

The next Fair Funding Review, which will set the formulas used to distribute funding, is set to take effect from April 2021. Many of the final decisions in the Review have yet to be taken, so no firm figures are yet available for the effect on individual local authorities. However, the Government has said that it wants to introduce 75% business rates retention (up from the current 50%) and abolish revenue support grant.

Statistical analysis of this year’s Settlement shows that funding levels are effectively flat in real terms compared to 2019-20; however, this leaves most authorities well below the level of funding that they were receiving in 2015-16. In terms of core spending power – the Government’s estimated measure of the amount of money that authorities will have available for making decisions – most authorities are set to see an increase relative to last year, with some seeing levels of spending power above where they were in 2015-16.