In this series, we're going to be looking at South Tyneside Council - what it is, how it works, how it's funded and so on. This edition: how STC is funded (part 1)
The funding of our local services affects almost every aspect of our lives.
The council get their money from three main sources – directly from national government (central government grants), tax on commercial properties (business rates) and tax on residential properties (council tax). Government policy has a considerable impact on service provision as it determines how the council is financed so over the next few issues we’ll take a look at how starting this month with...central government grants.
Local government receives various grants from central government, which broadly fall into two categories - specific ring-fenced grants and core funding grants.
Specific ring-fenced grants: these pass through the council’s accounts and straight onto other services (eg. schools, colleges, police, housing benefit payments etc) without the council touching them.
Core funding grants: this is the funding that councils can spend directly on the services they run. The main grant is called Revenue Support Grant but there are other grants linked to specific services such as the public health grant, new homes bonus and social care support grant.
‘Lies, damned lies, and statistics.’ (Mark Twain, 1907)
It’s important to know this difference because sometimes statistics for local government finance can be misleading. The total amount the council receives is larger than the amount they actually have to spend - the specific ring-fenced grants are included in the funding given to the council but they are not available for the council to use because, as we’ve seen, they must be passed directly to the specific service providers – schools, police etc.
If we concentrate just on the core funding grants, financing has decreased for all local authorities. Between 2010-2018, it was reduced by approximately 50% and the overall ‘spending power’ of local authorities reduced by 28%, according to the National Audit Office.
Now, it’s the terminology here that’s important. Opposition parties refer to ‘cuts’ in council funding – this relates to core funding grants only. On the other hand, the Government always refer to ‘spending power’, which includes the grants and the income generated from council tax and business rates, which means that the although the reduction in funding is the same, it can be presented as a smaller percentage of overall income!
However, no matter which way you look at it, the resources available to the council have been cutback significantly and this has hit some more than others. Councils like ours, with levels of deprivation, are likely to have less income from council tax and business rates because of lower property values and higher demand for services from residents. This makes theses councils more reliant on grant funding as it makes up a larger percentage of the overall budget. Conversely, councils in more affluent areas have benefitted from some of the changes to government funding - for example, the New Homes Bonus encourages housebuilding in high-value areas as it entails payments for properties with higher council tax bands.
In 2019, the Institute for Fiscal Studies (IFS) estimated that cuts and changes to core funding grants meant that between 2010-2018 spending per person in the most deprived fifth of councils fell from 1.52 times to 1.25 times the level in the least deprived fifth. Add this to the increased complexity in the system (in any one year there are up to 250 different grants many of which don’t last beyond a year making service and workforce planning increasingly hard) and the fact that a third are only awarded competitively, meaning that councils have to compete against each other to receive them, it's hardly surprising that the proportion of funding coming from business rates and council tax is steadily increasing…
SERIES CONTIUES HERE: How STC is funded (2 - Business Rates)
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