Local Government finance

Question 1

What are the two main ways local authorities spend money and what do they concern?

Answer 1

1. Capital spending which concerns big building projects such as new schools or housing estates.
2. Revenue spending which concerns the day to day running costs of these projects after they have been built, such as salaries, utility bills, minor maintenance etc.

(Capital = long term building costs
Revenue = short term running costs)

Question 2

Which 5 areas make up the money for revenue spending?

Answer 2

1. Government grants
2. Council Tax income – taxes on domestic property
3. Council house rental income
4. Other fees and charges (parking charges, leisure centre fees, library fees)
5. Business rates – property taxes on commercial property, known as the National Non-Domestic Rates (NNDR) governed by the Uniform Business Rate (UBR)

Question 3

What are the two types of government grants and what do they entail?

Answer 3

1. General government grants – a 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)
2. Specific government grants – 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 4

What are Business rates also known as and who governs them?

Answer 4

National Non-Domestic Rates (NNDR) - they are governed by the Uniform Business Rate (UBR)

Question 5

Where does 75% on average of council revenue come from?

Answer 5

By way of central government grants

Question 6

Where does on average 25% come from?

Answer 6

Council Tax

Question 7

What does this mean for more deprived areas with poorer housing stock?

Answer 7

They raise less in council tax and are more reliant on government grants

Question 8

Which trend did the 2010 Coalition government reverse in relation to grants and what did they change it to?

Answer 8

The number of passported grants that local authorities could only spend on things specified by central government - more money is now being delivered in unpassported grants that local authorities can spend as they see fit

Question 9

What overall trend has the number of grants being given to local authorities seen?

Answer 9

They have been cut back hugely – 40% or more

Question 10

How do business rates work?

Answer 10

Money is collected from business premises according to its ‘rateable value’ (i.e. what the rent would be)

Question 11

What is seen as controversial about business rates?

Answer 11

The fact 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

Question 12

What did the Coalition government do to business rates and what does it mean?

Answer 12

They decided to ‘repatriate’ Business Rates so that local authorities get to keep more of the business rates collected in their patch – about half is retained by the local authority

Question 13

What kind of tax is council tax?

Answer 13

A property tax with a personal element

Question 13

How are business rates calculated?

Answer 13

Using a ‘multiplier’ known as the Uniform Business rate.

Question 14

Who collects council tax?

Answer 14

The billing authority – (district councils in two-tier authorities and unitary authorities)

Question 15

Which type of authorities can claim some of the money collected by council tax?

Answer 15

Precepting authorities (Police and Crime Commissioners, Fire and Rescue Services, County Councils and Parish Councils)

Question 16

How can central government control how much authorities get from council tax?

Answer 16

By capping increases

Question 17

According to the LGA what has created a crisis in adult social care?

Answer 17

Cuts to local authority grants and an ageing population has created a funding gap of £2.6bn.

Question 18

What has the government introduced to help address cuts in funding to Adult Social Care?

Answer 18

The government has introduced (starting in 2015) an Adult Social Care Precept on council tax to help pay for the service

Question 19

How much can councils increase council tax by and at what point must they hold a referendum to get the backing of residents?

Answer 19

By 5%. 3% for general services and 2% for the adult social care precept

If they propose an increase of more than 5% they must get the backing of residents in the area in a referendum

Question 20

Which 5 main areas does the money for capital spending come from?

Answer 20

1. Capital grants from central government (e.g. City Challenge money)
2. EU Grants and loans – (e.g. European Regional Development Fund) no longer applicable as we have left the EU
3. Capital receipts – money raised through sales of council assets
4. Prudential borrowing – councils can borrow money according to limits set by the central government
5. 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.