Local government finance Flashcards
What sources do local authorities receive funding from?
Government grants, council tax, fees and charges.
What is the local authorities main two sources of income?
council tax and business rates
Where do local authorities in deprived areas get their money from
Deprived areas get 75% of their funds from government grants where as richer areas get 20%
Explain the central government cuts and how the covid pandemic impacted local authorities.
Government plans to cut the deficit had a large impact on councils – with real terms cuts between 2010 and 2019 estimated to be 27% or more. These cuts hit all local authorities – with poorer authorities more dependent on government grants most affected.
The pandemic also posed new challenges for authorities as the central government where called to inject more money to make up for shortfalls.
In recent years, the government has reversed the Labour trend of ring-fenced grants and reduced the number of them considerably – the government claims this gives councils more freedom on how they spend money.
➢ But there have been concerns about some cuts, especially when combined with rising demand such as for school transport, school places and adult social care.
In recent years, what has happened to central government funding?
In recent years, government has reversed the labour trend of ring fenced grants which central government. They claim this gives councils more freedom to spend funding how they want but there has been concerns about these cuts due to rising demand such as for schools, transport adult social care.
What is revenue expenditure?
This is the money councils spend on day-to-day running costs . This makes up the majority of spending and includes things such as wages, repair and maintenance, heating, payments to suppliers, stationery, materials, fuel etc. Traditionally, 70% of revenue funding has come from central government.
What is capital expenditure?
The rest of the funding goes on capital expenditure which involves large scale building projects and refurbishment which can cost millions. This money has to be raised separately to the revenue budget and projects can take between 3-5 years and to pay back the money borrowed can take years. Examples of projects could be building a new school, roads and facilities.
How does a council manage it’s spending?
A council budgets its spending months before knowing how much money they will receive from the central government.
They make funding decisions based on what they expect to receive and the income they can generate and how to use any reserves to fund spending or cut council tax.
A council’s planned spending after deducting these amounts is known as its budget requirement.
What is council tax?
Council tax was introduced in 1993 and is set by each authority. It is based on the value of your domestic property and how many adults are living in it. It is a hybrid tax based on property and personal income. Properties are grouped into valuation bands and what band you fall under determines how much council tax you pay. Some properties are eligible for discount or don’t have to pay council tax. Each the government publishes new thresholds for tax increase, if a local council wants to increase tax above the threshold they are required by law to hold a referendum.
There are 8 bands for domestic property,
What does council tax contribute towards?
Council tax contributes to less than a third of revenue spending but is important because it is the main element a local council can fix it self financially without help from the central government.
What are the pros of council tax?
-It is a predictable yield and help for councils to budget accurately
-main source of income for councils
What are cons of council tax?
-valuations are out of date, based on property value at 1991
- can favour occupants of expensive properties
-occupation of property is not a good indicator of ability to pay
Who and what properties are except from council tax?
Apprentices, full time students, student nurses, patients in long term care, severely mentally impaired and monks and nuns
Student houses, properties which are unfurnished on empty for more than 6 months of because the owner is in care home ect.
Who collects the tax?
The billing authorities collect the tax on behalf of the council.
