Written - Provisional Local Government Revenue Settlement 2010-11

I am publishing today my proposals for the funding of Local Government in Wales for 2010-11. I have laid the details of my provisional settlement before the National Assembly, including details of the provisional allocations of unhypothecated funding that each local authority may expect to receive for the forthcoming financial year (tables A to C attached).

These allocations will be subject to change by the time of the final settlement announcement on 8 December as the most up-to-date local authority tax base data that feeds into the calculations will not become available until November. I do not expect the changes to be significant, however. Today marks the start of a five week consultation period that will end on 17 November.

I propose to set Revenue Support Grant for 2010-11 at £4.051 billion. This is a cash increase of 3.2% compared with the figure for 2009-10. This includes the transfer of some important grants into the settlement. The uplift before account is taken of transfers is 2.1%. This is broadly in line with the overall average allocation to Assembly Government Department budgets.

This level of increase whilst being 0.8% less than the level of indicative uplift for 2010-11 published as part of the 2008 Assembly Government Budget, it is a far higher level of increase than the 1.3% increase that would have resulted if the £216 million or 1.6 per cent efficiency savings that the Assembly Government has had to find as a consequence of the Chancellor of the Exchequer’s April Budget had been visited on Local Government funding on a pro rata basis.

A 2.1% increase is significantly above the current and projected levels of inflation and clearly demonstrates the Assembly Government’s commitment to protect and sustain the key public services that local authorities deliver to the citizens of Wales in what is, and will continue to be a very difficult economic and fiscal environment.

We have been working with local government to develop a new understanding between us.   Now, more than ever, it is vital that we reaffirm our mutual interest in providing the citizen with excellent services.  In doing that we need to respect the political aims and accountabilities of our respective organisations and understand the practical aspects of policy development and service delivery that face us both in these challenging times. 

Local authorities continually strive to improve services.  We recognise that excellent work and are further supporting this through Improvement Agreements.  Part of the new understanding is our intention to move to Outcome Agreements with each authority.  Outcome Agreements will retain the local focus of Improvement Agreements.   They will draw on a range of quantitative and qualitative evidence of delivery, including that from inspectors and regulators, to demonstrate that authorities are playing a full role in service improvement.   They will be more broadly based than Improvement Agreements and align with the Assembly Government’s 19 strategic statements which themselves are drawn from One Wales.  This will ensure that we are both working towards a common view of the Wales that we want for the future.

We intend to introduce new funding flexibilities alongside Outcome Agreements which will move away from hypothecation and ring fencing and in doing so reduce the administrative overhead associated with these funding mechanisms.   Therefore, where an authority can demonstrate it has the capability and capacity to deliver agreed outcomes, we will reduce the level of control and direction over how funding can be used.  This might be through aggregating grants or by removing grant conditions altogether.

I am also very pleased to announce that other funding streams to Local Government, for which I have responsibility, have been protected as a result of the very tough decisions that the Assembly Government has had to make collectively in arriving at the draft Budget proposals announced by the Minister for Finance and Public Service Delivery on 5 October.

The Deprivation Fund of £22 million that has been available to local authorities in recent years to help with the delivery of services where deprivation is an important factor will remain unchanged. So will the £39.6 million the Assembly Government provides to meet the annual revenue cost of approved Private Finance Initiative projects. Although not part of the annual revenue settlement the level of unhypothecated capital funding available to local authorities will remain unchanged despite the need for the Assembly Government to find 4.6% efficiency savings in its overall capital budgets. I have made a marginal reduction of £300,000 in the £31.4 million level of Improvement Agreement Grant funding.

I intend to retain the arrangements for a funding floor that I first introduced in 2008-09 to ensure that all local authorities receive a minimum level of increase.  I propose to set the floor threshold at 1% for 2010-11. The Welsh Local Government Association have asked for a floor to be set at that level and  I consider it to be proportionate in the context of an overall settlement uplift of 2.1%.

I want to make it clear that in the current financial climate the money needed to fund the floor will come from within the RSG settlement. There is no additional money available. On the basis of the provisional settlement the authorities that will benefit from floor funding will be Anglesey and Powys. I also want it to be absolutely clear that I expect those authorities in receipt of floor funding to use it for service provision and not to subsidise decisions on council tax.      

The public expenditure outlook is extremely challenging and it is important that Local Government has increased flexibility to use its resources to deliver its service priorities in the most effective way. The Assembly Government is taking forward work on rationalising grant funding streams and reducing the complexity and bureaucracy of hypothecation.

The Provisional RSG figure I have announced today includes £44 million which is currently paid out through specific grant funding streams outside of RSG. Most significantly I have, with the agreement of the Welsh Local Government Association, moved the Deprivation Fund into RSG. The pattern of its distribution will be frozen pending further consideration. We are looking at the feasibility of incorporating other specific grant funding within RSG for the final settlement. 

In addition to the non-hypothecated support, there will still continue to be a significant level (over £600m) of specific grants from across the range of Assembly Government Departments to local authorities to support the delivery of specific services and initiatives. Details of specific grant allocations are still being worked through in some Departments but there are further increases next year in funding to support the Foundation Stage and Waste management.    

There is opportunity in adversity and I welcome the way in which the Assembly Government and Local Government has worked together to address the difficulties that we have needed to confront in this budget round. My Settlement proposals have been informed by a far more collaborative approach to the annual Expenditure Sub Group round. Our respective officials have worked to achieve a common understanding of the pressures facing Local Government and also to identify opportunities though more collaborative working; sharper procurement; and systems review (including initiatives that are already underway on all these fronts)  to mitigate those pressures in a climate of increasing financial restraint. We are already discussing how best to build on this new approach for the undoubted challenges we face in future years.

It is only through co-operation and partnership that we are going to address the very real difficulties ahead. I believe that, in all the circumstances, the provisional settlement proposals I have announced today are a good starting point.