Provisional Local Government Revenue and Capital Settlements 2007-2008

Today I am announcing the details of 2007-08 revenue and capital settlements for the 22 unitary authorities in Wales.

The Overall Settlement

Next year, after adjusting for transfers, local authorities in Wales will receive an average increase of 4.3% on the previous year’s settlement.

This increase in the funding is based on a detailed consideration of the funding pressures faced by local government.  This consideration has been informed by the continuing high degree of collaboration with local government through the Expenditure Sub Group , to identify pressures, and to agree the assumptions that underlie the costing of these pressures. This process allows us to set out in greater detail, the cost assumptions upon which the settlement is based, continuing our emphasis on transparency within the settlement.

We have assessed that an extra £122 million should be provided to meet the increased costs of pay and prices for all services including additional pressures on pension contributions and the costs of implementing equal pay audits.

In addition there is an extra £14.15  million revenue provided in the RSG to help local authorities to address pressures in the social care system. This adds to the growth in the funding over the period of the second Assembly Government to provide in total an additional £91 million recurrently in the baseline of the RSG in response to the increase pressures on social care budgets.

This extra funding will provide support for more people being cared for at home and in communities, avoiding admissions to hospital, facilitating timely discharges from hospitals, improving commissioning and addressing the costs associated with meeting higher standards of care and other pressures identified by the Expenditure Sub Group from an ageing population. It will also provide additional support for children’s services, including covering increases in the costs of placements and foster care.

In addition there is an extra £6 million in recognition of the increasing costs in providing for the complex needs of children with Special Educational Needs.

Also the settlement includes a further £3 million in recognition of the additional costs faced by local government from increased landfill tax, which brings to a total of £9 million added to the settlement since 2005-06 in recognition of this increased cost. Over and above the key pressures identified in the Expenditure Sub Group Report, the settlement provides an additional £0.5 million to assist local authorities with the additional costs of providing services for refugees and migrant workers.

Included in the Revenue Support Grant is the £16 million from the final phase of the transfer of the Children First Grant and £3 million from the Learning Disabilities Service Principles and Service Responses Grant. These transfers re-inforce the commitment of the Assembly Government to transfer Specific Grants into the settlement for all authorities where it is appropriate to do so.

The deprivation grant has increased by £0.5 million to £22 million. The Performance Incentive Grant has increased by £0.75million to £31 million.  The increases are broadly in line with inflation.  

Specific Grants

In order to provide a comprehensive picture of the funding the Assembly Government will provide in 2007-08, and to allow authorities to budget effectively, I am also today providing local authorities with current estimates of the other specific grants they can expect to receive in the next financial year. The information I am making available on specific grants shows that, in addition to the £3.7 billion authorities will receive through the settlement they will also receive in excess of £400 million in revenue specific grants. The major funding elements provided through specific grant include £56 million for Cymorth which provides a network of targeted support for disadvantaged children and young people in order to improve their life chances and £40 million to fund free bus travel for older adults and the disabled.

Making The Connections

Welsh local government, in common with the rest of the Welsh Public sector, is expected to make 1% efficiency gain on their annual expenditure. Around £35 million of that contributes through the costing of the key pressures to the service growth assumed in RSG. The remainder is available to fund the local authorities own priorities. I am pleased that the WLGA announced that provisional results of the efficiency stocktake revealed savings of nearly £80m across the wide range of services that local government delivers. This is against a target of £45m for 2005-06. This demonstrates that councils are driving hard to achieve efficiencies, but we all recognise that there is no scope for complacency and that we need to continue to deliver efficiencies – as Beecham said recently we need to “Make the Welsh pound go further”.  The greatest opportunities come through collaborative working where local government is making inroads.  Turning proposals and developing projects into real benefits as quickly as possible is a key challenge that local government has accepted.

The Welsh Assembly Government will continue to support local government through the Excellence Wales scheme to promote and transfer good practice, through “Value Wales”, a cross-public sector source of expertise on procurement and shared services and through the Making the Connections Improvement Fund. In providing such support, I expect to see in return engagement with the opportunities that become available.  

Should local authorities decide to seek efficiency gains in relation to delegated schools’ budgets, we would expect that the gains should come from genuine improvements in the way services are managed. Cuts in budgets to schools do not of themselves count as efficiency gains and should not be counted as such. Authorities need to work with school heads and governors to find real opportunities for efficiency gains and support them to deliver the gains. As l indicated in the debate on the draft Assembly Budget, I will be writing to every local authority, every school and every local school Budget forum to make this absolutely clear for the future.  


Distribution between Authorities

The implications of the overall settlement for individual authorities are dependent on the standard spending assessment formula. A table setting out the details of the settlement for each authority accompany this statement.  The details of the increases in the allocations of the revenue settlement for each unitary authority are expressed after adjusting for transfers. Further detailed tables including individual allocations of the capital settlement are available on the Welsh Assembly Government’s internet site.

It is important that the formula is updated to reflect as accurately as possible each authority’s need to spend to meet its responsibilities. However these formula changes can create a significant degree of turbulence in the funding for local government. It is important that authorities have a degree of stability in their funding to manage service delivery and avoid putting undue pressure on council tax rises. Therefore the Consultative Forum on Finance  agreed that for 2007-08 there should be a three year phasing in of changes to the road maintenance and Learning Disabilities funding formulas.

The range of increases across authorities largely reflects the changes in each authority’s relative share of the overall population in Wales and specific groupings such as pupil numbers.

Three Year Settlements

For future years from 2008-09 onwards, I would expect that the figures published in the Assembly’s Draft Budget for the Revenue Support Grant will provide authorities with more of the details which they need to prepare their medium term financial and strategic planning. The Consultative Forum of Finance of the Partnership Council agreed to an Action Plan following the consultation on three year revenue and capital settlements for local authorities in Wales.

The Action Plan reflects that there are activities which can be pursued in the short term to shift planning onto a three year basis and there are areas where further work is required in order to fully introduce three year planning. The action plan reflected the evidence from the experience of three year settlement planning in Scotland and England that introducing a three year settlement financial settlement regime needs to be considered as part of a wider agenda for developing medium term financial and strategic planning.

Local Authority Business Growth Incentive Scheme

Next year is the final year of the Local Authority Business Growth Incentive Scheme. This is an initiative that was introduced by the Chancellor of the Exchequer in 2005-06 and is planned to run for three years. It has the potential for £60 million to be provided to local authorities during the period. This is additional to the Assembly Government normal budget and is classed as Annually Managed Expenditure.

Take up by local authorities in the first year of the Scheme was higher than expected. As a result it has been necessary to re-profile the balance that will be made available in the current financial year and 2007-08. It is not possible to say at this stage precisely how much each authority will get. This is because until data is available later this year it is not possible to predict the amount of growth in rateable value each authority has achieved. However a sum of £40 million remains available for distribution to authorities in the current and next financial years.  

Capital Settlement

With regard to the capital settlement, the capital allocation for 2007-08, including specific capital grants, has increased to £652 million, an increase of 6%.

The General Capital Fund increases by £5.5million in 2007-2008 and totals some £217 million. This is unhypothecated capital funding of which £54 million is paid as capital grant, the remainder, around £163 million, is provided as support for borrowing.

In respect of specific capital grants these have increased by 7.8% to £435 million. This increase is mainly due to additional specific capital grant for local roads maintenance (£15 million additional to the planned figure); fire and rescue services (£9 million); air and rail projects (£13.5 million) and School Building investment (£7 million). There will be £13 million within Health and Social Services for capital investment in telecare and community equipment.

In conclusion, I have made all this information available now in order that authorities are able to plan their budgets knowing what they can expect to receive from the Welsh Assembly Government. I believe this to be a good settlement for local authorities. It provides local authorities with a reasonable financial response to the pressures they face. I expect Councils to take this into account when they determine their budgets and council tax levels for next year.

The announcement today commences the formal consultation with local authorities on the provisional settlement. I look forward to considering the responses that are received.