Local Government Finance Settlement Update

Thursday 29th February 2024 Written Statements

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Simon Hoare)]

On 5 February, my right hon. Friend the Member for Surrey Heath (Michael Gove) set out the final local government finance settlement for England for 2024-25. The final settlement includes new funding for local authorities worth £600 million and makes available up to £64.7 billion for local authorities in England, an increase in core spending power of up to £4.5 billion, or 7.5% in cash terms—an above-inflation increase—on 2023-24.

As a result of this settlement, the vast majority of local authorities will be able to set balanced budgets in 2024-25 and continue to deliver vital services for their communities.

Members of the House will be familiar with the small number of local authorities with severe local failure, where the Government have had to step in and take the most serious action through statutory intervention. These authorities are Birmingham City Council, London Borough of Croydon Council, Liverpool City Council, Nottingham City Council, Sandwell Metropolitan Borough Council, Slough Borough Council, Thurrock Council and Woking Borough Council. The House receives regular updates on the progress of these interventions. In some of these cases, significant local failures in governance and financial management have resulted in acute financial failure, and these councils have asked the Government for continued support to help them set budgets including for 2024-25.

In addition, the Government have always stood ready to engage with local authorities who may request support on an exceptional basis due to local issues that they are unable to manage themselves. While those discussions are confidential, the Government are committed to making the details of any support that is agreed public, in the interests of transparency. Today, my Department is publishing on www.gov.uk details of in-principle capitalisation directions provided to a small number of these local authorities. I will deposit copies of any relevant documents in the Library.

Capitalisation directions permit a local authority, in specific and exceptional circumstances, to meet revenue costs through capital resources, enabling them to manage budget pressures over time—for example through the sale of council-held assets. They do not include any additional direct grant funding. At this stage, and in line with precedent, the Government have provided these local authorities in-principle support only, to ensure that they can set their 2024-25 budgets and deliver vital services for their communities.

In line with the usual framework for agreeing capitalisation directions, appropriate conditions will apply. These are intended to ensure that the process is only used in circumstances where it is truly necessary, address the drivers of the issues that have led to local authorities requesting support, and ensure continued progress towards achieving financial sustainability. In all cases, the Government expect these local authorities to take into account the need to reduce wasteful expenditure, and ensure every area is making best use of taxpayers’ money. Where statutory interventions are in place, any final agreement to support will be contingent upon the demonstration of ongoing improvement, transformation and recovery.

Where the Government have agreed to provide support, it is essential that appropriate assurance arrangements are in place. Where appropriate, any final agreement to support will be conditional upon the completion of rigorous external assurance reviews to assess, at a minimum, the local authorities’ financial management practices, and the production of improvement and transformation plans that focus on securing the local authorities’ medium-term financial position. The Government are taking additional action in the case of Plymouth City Council, which has requested a very significant capitalisation as a direct result of the incorrect accounting treatment of a transaction in 2019-20 through which the council borrowed to pay off a large part of its pension deficit. Given the unusual nature of Plymouth’s approach, the in-principle capitalisation is conditional on a thorough, independent investigation into the transaction.

I am clear that the Government will not hesitate to take action if needed to protect local taxpayers.

[HCWS300]