Tuesday, 20 September 2016

Chief Finance Officer's Briefing Note on RSG Four Year Funding Settlement

Following postings on this blog and thr Brent Conservative Group's attempt to get the issue debated, Conrad Hall, Brent Council's Chief Finance Officer has issued this briefing note:

Four year funding settlement

1.     As part of last year's local government finance settlement DCLG allowed local authorities to fix their revenue support grant (RSG) settlement until 2019/20 and set a deadline of 14 October by when local authorities had to decide whether or not to accept the offer.  After this date any councils which have not responded would be considered to have rejected the offer.

2.     To accept the offer councils merely need to write to DCLG confirming their decision and submit an efficiency plan.  There is little or no guidance on the efficiency plan, except that it should be brief, no more than four pages.  Most councils that have accepted the offer to date merely seem to have submitted their existing MTFS or a version of it, which has been acceptable.

3.     The option to fix RSG through to 2019/20 has therefore been known about for almost a year.  It has been referenced in update reports on the budget and financial position during this period.  The budget report to council on 22 February 2016, for example, set out what was known at that time and commented that "officers have assumed that funding from 2017/18 to 2019/20 will be as set out in the draft four year settlement".

4.     It is therefore clear that the financial strategy already agreed was based on an assumption that the option to fix RSG would be accepted.  Of course, Members could decide otherwise.

5.     However, the arguments for fixing the settlement are as strong now as they were seven months ago when the current budget was set.  Certainty in financial planning is always advantageous and it is undoubtedly the case that the local government sector has persistently argued for longer-term funding settlements than the single year normally allocated by DCLG.  Arguably this makes it rather perverse then to reject an offer to provide that very certainty.

6.     Given this, the argument to reject the settlement only makes logical sense if one believes that more resources might be allocated in later years than currently planned, and that councils that had fixed their settlements would therefore lose out.  For this to stack up one must believe that government's net revenue spending will increase over the next three years and that at least some of that additional expenditure would be allocated to local government, rather than say to the NHS or to fund tax cuts.

7.     Neither of these appears likely.  Furthermore, one would also have to believe that additional resources allocated to local government would flow through to London for Brent to benefit by rejecting the fix.  As other changes to aspects of the overall funding system are tending to move resources away from London this would be an optimistic assumption.

8.     Of course, accepting the fix guarantees that RSG will continue to fall sharply until 2019/20.  However, the decision is about whether to guarantee future funding levels and accepting the fix does not imply agreement with the actual amount allocated.  It is merely a pragmatic way of managing a very challenging financial settlement by reducing future volatility and risk.

9.     Legally, Parliament cannot bind a future Parliament, and so DCLG retains the right to vary future settlements even for those councils that accept the fix.  However, officials have made it clear that they would be very reluctant to do so and it is reasonable to assume that the fix would be honoured in any but the most extreme economic circumstances.

10.  Within London officers know of no councils rejecting the opportunity to fix RSG.  Decision making has usually been managed at Cabinet.  A few councils have formally taken the decision at a council meeting or as a delegated decision.  Where the matter has been decided at Council officers understand that there has apparently been no significant debate, on the item.

Conrad Hall
Chief Finance Officer

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