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March 2016 Budget - Issues for Local Authorities
Trowers Public Insight

March 2016 Budget - Issues for Local Authorities

Head of public sector commercial, James Hawkins, comments on the Budget 2016 which was announced today.

  1. The proposal to make additional savings equivalent to 0.5% of total government spending has already been announced but the impact on non-protected departments like DCLG is likely to be more significant.  Local Authorities will inevitably have to work harder to balance the books and look to service cuts and income generation models to manage the transition to reliance on business rates.
  2. The government intends to drive forward the radical devolution of power to school leaders – expecting all schools to become academies by 2020 or to have an academy order in place to convert by 2022.  This will have significant implications for local authority children's services departments and local authorities which have schools PFI contracts.  Back office education services will still be needed and there is an opportunity for LA school support teams to spin out or mutualise.
  3. The proposal to cut business rates for all properties in England with 600,000 small firms paying no rates so that the business rates burden will fall by £6.7 billion over the next 5 years.  This will reduce available income for LAs at a time they are becoming more reliant on business rates financially.  Local Authorities will need to respond to the government's consultation on business rate reform and put in place strategies to deliver alternative sources of revenue to help balance the books.
  4. The Spending Round 2013 announced a control total to limit payments under PFI/PF2 contracts.  Currently set at £70 billion and Treasury is on track to meet target.  Forecast total spending from 2015 - 20 on all PFI/PF2 contracts stands at £51.7 billion.  Local authorities will need to continue reviewing operational PFI/PF2 contracts with a view to seeking further cost savings – e.g. by changing scope of services and/or triggering refinancing provisions to reduce cost.
  5. Launch of Starter Homes Land fund prospectus inviting Local Authorities to access £1.2 billion to remediate brownfield land for housing to deliver at least 30,000 Starter Homes.  Local authorities will need to keep the rules under review and consider whether they can deliver the homes themselves to generate additional capital receipts.
  6. Planning reform – the government plans to move to a more zonal and redline planning approach – local plans to signal local authorities' development strategy.  Measures to speed up planning.  This is likely to be beneficial increasing revenues from S106/CIL income.  It will need further resources in local authority Planning Departments to take advantage of the changes.
  7. HCA to work in partnership with Network Rail and local authorities to provide land around stations for housing, commercial development and regeneration – details of sites to follow.  This could pave the way for joint developments by local authorities and Network Rail to maximise return on investment e.g. through multi public authority development companies.
  8. New garden towns and cities – with a potential to deliver 100,000 homes.  New legislation to make is easier for local authorities to create new garden towns and consultation on a second wave of CPO reforms to make the process clearer, fairer and quicker.  This could provide significant impetus to local development. Now is the time for local authorities to be bold.
  9. £100 million to deliver low-cost 'second stage' accommodation for rough sleepers.  This could provide a source of funding for local authority backed accommodation – to reduce long term costs and create an investable asset.
  10. Business Rates billing and collection - by 2022, Local Authority business rate systems to be linked to HMRC digital tax accounts.  Government to work with LAs across England to standardise business rate bills and allow online billing and payments.  Local Authorities will need to keep this under review – it is likely to impact on existing contracts (where the collection service is externalised) or numbers of staff required where the service is provided in-house.
  11. Devolution Revolution – "Local government will be compensated for the loss of income as a result of the business rate measures .....as part of the government's consultation on the implementation of 100% business rates retention in summer 2016".  Local authorities will need to review the consequence of cuts in business rates and make sure they respond to the Government's consultation.
  12. Local Government Pension Scheme to establish a small number of British Wealth Funds – combining assets into larger investment pools – to deliver annual savings of £200-300 million.  Government to work with funds to set up new Local Government Pension Scheme infrastructure investment platform to boost infrastructure investment.  This could be a valuable source of new funding but local authorities to keep under review the funds' approach to construction/ investment risk.  This may result in a desire to invest only in delivered assets – so local authorities will need to use other sources of funding to provide assets initially before they can be refinanced via the pension funds.
  13. Transparency in local authority services – consultation on new rules requiring local authorities to be transparent about the cost on the in-house services they provide.  This is likely to drive new proposals for achieving cost savings through shared services, services provided by trading companies or outsourcing.

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