Local Goverment finance

Question 1

Local authorities spend money in two different ways;

Answer 1

Capital and revenue

Question 2

• Capital spending

Answer 2

concerns big building projects such as new schools or housing estates

Question 3

Revenue spending

Answer 3

concerns the day to day running costs of these projects after they have been built, such as salaries, utility bills, minor maintenance etc

Question 4

Where does the money for revenue spending come from?

Answer 4

Government grants 
specific government grants
council tax income
other fees and charges 
business rates
council rental income

Question 5

General government grants

Answer 5

sum of money that the government gives to local authorities and then the local politicians decide what to spend it on. E.g. the Revenue Support Grant (RSG)

Question 6

Specific government grants

Answer 6

called passported grants – money passed to local authorities that may only be spent on specific things. The ministers in London decide where this money will be spent, not local councillors. E.g. The Dedicated Schools Grant (DSG)

Question 7

Council tax income

Answer 7

Taxes on domestic property

Question 8

other fees and charges

Answer 8

parking, leisure and library fines/costs

Question 9

Business rates

Answer 9

property taxes on commercial property, known as the National Non-Domestic Rates (NNDR) or the Uniform Business Rate (UBR)

Question 10

How much of council revenue comes from central government grants?

Answer 10

75%

Question 11

on average how much of council revenue comes from council tax?

Answer 11

25%

Question 12

Business rates

Answer 12

• Money is collected from business premises according to its ‘rateable value’ (i.e. what the rent would be)
• It is not based on the profits of the business, which is seen as controversial because highly profitable companies occupying small premises pay relatively little
• Until recently the National Non-Domestic Rates or Uniform Business Rate was collected locally but pooled by central government and redistributed by Westminster politicians
• The Coalition government is ‘repatriating’ NNDR and UBR so that local authorities get to keep more of the business rates collected in their patch – about half is retained by the local authority
• Business rates are calculated using a ‘multiplier’. For example a property with a rateable value of £20,000 and a multiplier of 49.3p will pay: £20,000 x 49.3p = £9,860 a year in business rates.

Question 13

council tax

Answer 13

• It is a property tax with a personal element
• Households are taxed according to a notional value last calculated in 1991
• Houses are put into one of eight bands – A-H - depending on this notional value, and charged accordingly
• Property taxes are cheap to administer and collect and difficult to avoid
• Council taxes are collected by the billing authority – (district councils in two-tier authorities and unitary authorities)
• Precepting authorities can claim some of the money collected (Police and Crime Commissioners, Fire and Rescue Services, County Councils and Parish Councils)
• Central government can control how much local authorities get from council tax by capping increases
• People living alone get a discount. Students are exempt.

Question 14

Adult social care precept

Answer 14

• Cuts to local authority grants and an ageing population has created a crisis is adult social care, according to the Local Government Association, with a funding gap of £2.6bn by 2020.
• The government has introduced (starting in 2015) an Adult Social Care Precept on council tax to help pay for the service
• In December 2017 the government announced that local authorities could raise council tax by 5.99% - 2.99% for general services and 3% for adult social care
• It is the biggest rise in 15 years
• If they propose an increase of more than 5.99% they must get the backing of residents in the area in a referendum
• See https://www.theguardian.com/society/2017/dec/19/council-tax-bills-could-rise-100-a-year-government-relaxes-cap-sajid-javid
• Police and Crime Commissioners can also raise their council tax precept by £12 per household – see http://www.bbc.co.uk/news/uk-42414018

Question 15

Where does the money for capital spending come from?

Answer 15

• Capital grants from central government (e.g. City Challenge money)
• EU Grants and loans (e.g. European Regional Development Fund)
• Capital receipts – money raised through sales of council assets
• Prudential borrowing – councils can borrow money according to limits set by the central government
• Private Finance Initiative (PFI) and Public-Private Partnerships (PPP) – private companies provide capital investment (e.g. for a new school) and this is paid back by the local authority over years. The capital spending does not appear on the local authority’s balance sheet. Controversial as over the years councils could end up paying much more for new projects.