Councils in the poor Northern regions of England are set to give a more generous Whitehall grant of £2 billion at the direct expense of the typical, more prosperous Southern authorities.
The UK government has announced eight-week consultations on the “progressive” redistribution of local government funds to balance taxpayer support for areas with the highest needs.
Keir Starmer’s move by the Labour Government is likely to benefit many councils run by his own party in the north of England at the expense of conservative authorities in the South.
Local Government Minister Jim McMahon said on Friday that the council is “kneeing” after 14 years of funding and “controlled decline” by the previous Tory government.
“We are committed to providing ambitious fundraising reforms for local governments based on their needs,” he said in a written statement from the Minister.
He added: “The formula used to assess the current needs of local governments in the decade era is updated to target places that need to go and ensure that they are overlooked.”
The improvements will shift around £2 billion towards “where and community that needs most,” McMahon said.
The council receives about £70 billion a year from the central government, about half of its revenue, with the rest coming from council taxes and business rates.
As a result, City Hall, which lost out of Whitehall Funding Formula reforms, may need to try and raise other taxes to fill the budget gap.
Local governments cannot raise parliamentary tax bills more than 5% per year unless they successfully hold a resident referendum.
“These new backdoors are rising with fees and billing,” said Kevin Hollinrake, Local Government Secretary for Tory Shadow.
In recent years, many low-income people in the northern region have paid more council taxes than some wealthy individuals in the leafy South County, where there are few financial demands on the authorities.
Henri Maisson: “The councils serving the most disadvantaged communities have long been underfunded. We can now look to the future with a more equitable settlement ©via Northern Powerhouse Partnership
Northern Powerhouse Partnership CEO Henri Murison said the simple fact that many of the councils lost in Friday’s reforms are now paying council taxes “dramatically lower” than elsewhere.
He said some wealthy Borough mansions in London pay lower council taxes than semi-detached homes in Hartlepool.
“It means that councils serving the most disadvantaged communities have long been underfunded. We can now look to the future with a more fairer settlement,” he said.
Kate Ogden, a senior research economist at the Institute for Financial Studies, said the reform was a “long postponement” and would have a “very significant” impact on several councils.
She said poor urban areas, particularly poor urban areas in the North and Midlands, will generally see an increase in central government funding, as their funding was at the lowest in the 2010s.
“On the other hand, particularly the lush suburbs and rural areas of the southern region, government funding has been cut as overall funding was improved in the 2010s,” Ogden added.
McMahon is suffering from a decline in government support and a “low historical tax base,” even if a high level of needs are increasing demand for services.
“The current funding system is 10 years old and reinforces the gap between disadvantaged places and other countries,” he said.
Some councils will lose revenue, but the minister promises a “finance floor.”
That is, most councils that have lost will not be able to see their budget falling under cash terms at least for the new years.
McMahon said the government would also invite the view that it would “reset” its business rate retention system and would invite it to “recover a balance between rewarded business rate growth and fundraising if necessary.”
Pete Marland, chairman of the Local Government Association’s Economic and Resources Committee, said the various councils had “contrasting views” on the proposal.
“Individual councils need to know the impact to avoid putting services at risk, transition mechanisms are important, council finances are under pressure, and all councils need the right resources to meet the increasing costs and demand pressure,” he said.
