Provisional Local Government Financial Settlement 2023-24

Introduction

The provisional 2023-24 Local Government Finance Settlement was published on 19 December 2022 following a Written Ministerial Statement by the Rt Hon Michael Gove MP, Secretary of State for Levelling Up, Housing and Communities (DLUHC). It outlines provisional funding allocations for local authorities for 2023-24. Full details can be found on the DLUHC website₁. This briefing provides a summary of the outcome for London local government.

Key headlines

• Core Spending Power will increase by 9.2% across England and London boroughs in 2023-24.
• The Council Tax referendum threshold will increase from 2% to 3% for 2023-24 and the Social Care Precept will increase from 1% to 2% in 2023-24.
• Settlement Funding Assessment (core funding) will increase by 5% to £15.7bn (£2.9bn London boroughs).
• Councils will be compensated for the freeze in business rates – equivalent to September CPI inflation (10.1%) totalling around £1.5bn (£250m for London boroughs).
• The Social Care Grant will increase by £1.5bn in 2023-24 to £3.9bn (£612m in London).
• ASC Market Sustainability and Improvement will be supported by a £562m ringfenced grant with £400m added to the existing £162m Market Sustainability and Fair Cost of Care Fund.
• The IBCF continues alongside an additional ASC Discharge Grant worth £300m nationally. 
• Services Grant will reduce by 44% in 2023-24 to £464m (England) and £86m in London.
• The Lower Tier Services Grant will be discontinued.
• There will be a new one-off CSP funding guarantee to ensure all authorities receive a minimum 3% increase (no London boroughs will receive this).
• The New Homes Bonus will continue in 2023-24 as an annual grant. Legacy payments will end, and the future of the grant will be confirmed before the 2024-25 LGF Settlement.
• Four existing grants (worth £239m) will be rolled into Settlement Funding Assessment and the Social Care Grant. 
• Tariffs/top-ups will be adjusted to ensure the 2023 Revaluation and, as far as practicable, will not impact on boroughs’ retained business rates.
• Neither fundamental reform to needs assessments nor the business rates reset will be implemented before 2025-26.

Core Spending Power

At the England level, Core Spending Power (CSP) - the Government’s overall measure of core local government funding - will increase by £5.0bn from £54.5bn to £59.5bn: a real terms increase of 5.8% and a cash increase of 9.2%. Across London boroughs, CSP will increase by £740m from £8.01bn to £8.75bn: a real terms increase of 5.8% and a cash increase of 9.2%. This is the largest cash and real terms increase since 2010. Chart 1 below shows the real terms annual percentage change in CSP for London boroughs and England over that period. Despite this increase, CSP will remain 18% below the 2010 level in real terms for London boroughs (13% across England).

Chart 1 – annual real terms change in CSP from 2010-11 to 2022-23 – London boroughs and England (%)

Table 1 below details the composition of CSP for London boroughs and England overall. The key changes in funding streams from 2022-23 are:

• The Market Sustainability and Fair Cost of Care Fund (2022-23: £162m for England) has been rolled into the Adult Social Care Market Sustainability and Improvement Fund and topped up with a further £400m of new grant funding announced as part of Autumn Statement 2022.
• A new Adult Social Care grant worth £300m will be ringfenced for adult social care and will also help support capacity and discharge.
• The Lower Tier Services Grant (2022-23: £111m for England) has been discontinued.
• To simplify the funding environment, grants worth £239m in 2022-23 have been rolled into the Revenue Support Grant and Social Care Grant. These discontinued grants include Family Annexe Council Tax Discount grant (£7m), Local Council Tax Support Administration Subsidy grant (£69m), additional funding for food safety and standards enforcement (£2m), and the Independent Living Fund (£161m).
• A funding guarantee to ensure all authorities’ Core Spending Power increases by at least 3% in cash terms (NB. no London boroughs will receive this). 

London boroughs will receive £111m (13%) of the £836m of new social care grant funding announced. 

Table 1 – Core Spending Power for 2023-24 – England and London boroughs (£m)

Charts 2 and 3 below show the % change in CSP by authority type and region from 2022-23 to 2023-24. London boroughs will receive a lower increase than shire counties (9.8%) with metropolitan districts receiving the largest increase at 10.2%, largely driven by the distribution of new social care funding announced at Autumn Statement 2022 (AS2022) and confirmed in the settlement. The second chart shows London (boroughs and the GLA) will receive the third lowest increase of any region, after the South West (8.8%) and South East (8.6%). 

Chart 2 – change in CSP by authority type – 2022-23 to 2023-24 (%)

Chart 3 – change in CSP by region - 2022-23 to 2023-24 (%)

Council Tax 

The provisional settlement confirms the intention for a core council tax referendum principle of up to 3% in 2023-24 and 2024-25, as announced at the Autumn Statement. The flexibility to raise the Social Care Precept will also increase by 1% to 2% for 2023-24 and 2024-25 for relevant authorities.  

On 16 December 2022, the Mayor of London published the draft GLA budget for consultation. The provisional Band D precept on council taxpayers in the 32 London boroughs at this stage is £423.48 – a £27.89 or 7.1% increase compared to last year. The provisional precept for council taxpayers in the City of London is £140.82 (an increase of £22.36 which excludes the rise relating to the Met Police). Both these amounts include the £20 bespoke additional flexibility which Government is again granting the Mayor to fund transport services in London.

Adult Social Care

The settlement confirmed the additional funding set out in the Autumn Statement of up to £2.8bn in 2023-2024 in England and £4.7bn in 2024-2025 for social care and discharge. This includes £1bn of new grant funding in 2023-24 and £1.7bn in 2024-25, further flexibility for local authorities on council tax and delaying the rollout of adult social care (ASC) charging reform from October 2023 to October 2025.

Social Care Grant 

Social Care Grant (SCG) will total £3.9bn in 2023-24: an increase of £1.5bn  Around £1.3bn of this increase is funded by money previously earmarked for ASC funding reform, a further £160m comes from the rolling in of the Independent Living Fund, and an additional £80m has been redistributed from within the settlement. £1.185bn of this new funding will be allocated using the ASC Relative Needs Formula (RNF), with the remainder (£160m) used to equalise for the variation in yield that can be generated from the social care precept. 

London boroughs will receive £612m (15.9%) of the SCG. The policy statement on 12 December confirmed a further £1.9bn nationally will be added to the grant in 2024-25 (bringing the total to £5.5bn), although the approach to distribution for 2024-25 has not been confirmed. 

As with previous years, despite the grant being ringfenced to be spend on adult social care or children’s social care, the government is only using the adult social care relative needs formula to distribute the grant.  London boroughs would stand to gain significantly more funding (an estimated £133m in 2023-24) if the children’s social care (CSC) RNF was also used in equal weighting to the ASC RNF – as boroughs receive a 15% share of the ASC RNF, but 25% of the CSC RNF. The more this funding stream is increased – the more difficult the government decision to use ASC needs only for distribution becomes. 

Improved Better Care Fund

The Improved Better Care Fund (iBCF) will continue at the same level as in 2022-23 (£2.1bn), with London Boroughs receiving £346m (16.3%). The grant will continue to be required to be pooled as part of the Better Care Fund.

ASC Discharge Grant

A new grant worth £300m (part of the £600m of new funding set out at AS22) will be required to be pooled as part of the Better Care Fund. London boroughs will receive £49m (16.3%). It is planned to distribute this using the existing iBCF grant shares given that it must be pooled into the BCF. The government will set out further details on the conditions of this funding in due course, with the funding intended to support improvements to adult social care and in particular to address discharge delays, social care waiting times, low fee rates and workforce pressures in the adult social care sector.

ASC Market Sustainability and Improvement Fund 

While the ASC funding reforms have been pushed back to October 2025 (as set out at AS22), the existing £162m Market Sustainability and Fair Cost of Care Fund has been combined with the £400m of ringfenced new funding, set out at AS2022. Funding will be distributed using the ASC RNF. London boroughs will receive £87m (15%) in 2023-24. Again, the government expects this new grant funding to enable local authorities to make tangible improvements to adult social care, with emphasis on addressing discharge delays, social care waiting times, low fee rates and workforce pressures in the adult social care sector. As with the additional iBCF funding, there will be reporting requirements placed on the new Adult Social Care Grant against these objectives.

Settlement Funding Assessment

Settlement Funding Assessment

Overall, Settlement Funding Assessment - the total amount received by local authorities in Revenue Support Grant and Baseline Funding - will increase by £789m (5.3%) from £14.9bn to £15.7bn. For London boroughs, SFA will increase by £154m (5.5%) in 2023-24.

Business rates Revaluation 2023

As happened in 2017, the Government intends to remove any gains or losses resulting purely from the 2023 business rates revaluation an any transfers to the central list by making an amended technical adjustment to tariffs or top-ups. Baseline funding levels will remain unaffected. The methodology follows the 2017 approach, with an additional adjustment to account for outstanding appeals.

Business Rates multiplier compensation

The Government will continue to compensate councils for its policy, confirmed in the Autumn Statement, to continue to freeze business rates in 2023-24. Overall, around £1.5bn of compensation is provided (via a grant and through uprating of baseline funding), to ensure councils are compensated at September CPI inflation levels (10.1%). London boroughs will receive around £250m for this. The Government has confirmed it will no longer compensate authorities for the difference between indexing using RPI and CPI inflation.

Revenue Support Grant

To simplify the funding landscape, the Government intends to consolidate three grants totalling £77.9m into the local government finance settlement. All three grants will keep their existing distribution. These are the Council Tax Discounts – Family Annexe (£7.4m); Local Council Tax Support Administration Subsidy (£69m); and Natasha’s Law (£1.5m). Before the impact of rolled in grants, 2023-24 RSG will be increased in line with September CPI inflation (10.1%).

The PLGFS confirmed that those authorities who would expect to receive “negative RSG” will continue to be compensated in 2023-24. Last year’s negative RSG figures for the three London boroughs who receive it (Bromley, Kingston, and Richmond) will rise by CPI inflation. 

Other Special and Specific Grants

Services Grant

The “Services Grant” - which totalled £822m in 2022-23 and was intended to be a one-off grant - will continue in 2023-24, but at £464m across England. The reduction includes around £200m to fund the impact of the government decision to reverse the National Insurance Contributions increase to fund the Health & Social Care Levy, for which public sector employers had been exempt. A proportion has also been top sliced to fund an increase to the Supporting Families Programme. The distribution of the Services Grant will continue to be determined by shares of 2013-14 Settlement Funding Assessment. London boroughs will receive £86m (18.5%).

New Homes Bonus (NHB)

Provisional NHB allocations total £291m nationally (a reduction of £264m or 48%) and London borough provisional allocations total £49m (a reduction of £38m or 44%). As with last year, the grant will be a one-off grant and won’t attract new legacy payments.  The final year of legacy payments (totalling £221m) from the 2019-20 allocation will end. The calculation methodology remains unchanged, with authorities needing to achieve tax base growth of greater than 0.4% before they receive any NHB funding. 

The government has committed to setting out the future position of New Homes Bonus ahead of the 2024-25 local government finance settlement.

Lower Tier Services Grant / Funding Guarantee

The Lower Tier Services Grant - worth £111m in 2022-23 - will be discontinued in 2023-24. This funding will largely fund a new one-off Core Spending Power “funding guarantee” worth £136m to ensure all authorities receive a minimum 3% increase. No London boroughs will receive the 3% guarantee funding.

Local Government Finance Reforms

The Government has now postponed any plans to reform its assessment of need and resources or to reset the business rates retention scheme until after the current parliament – i.e. 2025-26 at the earliest.  

Commentary

The 2023-24 provisional local government finance settlement provided much needed additional resources for London boroughs through the largest increase to Core Spending Power since 2010. The increase in Core Spending Power will go a long way to helping boroughs to balance budgets next year, and demonstrates that concerns raised by the sector’ have been heard by government.

However, around a third of the 9% increase to Core Spending Power is dependent on councils raising council tax to the maximum 5% permitted, which will be particularly difficult during the cost of living crisis residents are facing. This means that, despite the wider uplift in funding, there will still be significant pressure on borough budgets next year particularly as inflation remains high and the rising cost of living continues to increase demand for council services, in particular homelessness into next year. 

Turning to the detailed announcements in the settlement, the government confirmed its intention to delay reforms to ASC funding, and instead repurpose the associated funding (£1.265bn in 2023-24 and £1.877bn in 2024-25) to meet existing ASC demand pressures. At face value, boroughs will welcome this funding to deal with the ongoing demand pressures which haven’t yet abated since the pandemic, but there remains a lack of certainty around additional ASC funding beyond 2024-25. The new reporting requirements placed on the Adult Social Care Grant and the Better Care Fund, are also still to be confirmed.

The compensation announced as part of the settlement for under indexation of the Business Rates multiplier will prove helpful for boroughs who are more reliant on business rates income. The compensation up to CPI indexation (10.1% in Sept) will help ease the inflationary pressures that boroughs are currently facing. 

As with last year, the 2023-24 settlement has come very late in December, and has only confirmed funding for a single year, and some large grants outside the settlement remain unconfirmed (for Public Health and Homelessness Prevention) . However, the government did confirm much of the funding for 2023-24 and set out most the intentions for the main funding streams for 2024-25 in its policy statement on 12 December, which has provided the sector with a little more certainty than in previous years.

The decision to delay the Relative Review of Needs and Resources and the Business Rates Reset were announced as part of AS2022 and confirmed in the settlement, in order to provide more certainty to councils in relation to budget planning. However, by April 2023, it will have been a decade since the funding formula have been updated; a decade in which London’s population grew by almost 800,000 and when the gap between wages and housing costs grew starkly in many parts of London. An assessment of whether the business rates retention system continues to incentivise councils to deliver business rates growth and is the fairest way to distribute funding is long overdue. The scheme is now being propped up by over £2.21bn of grant funding to compensate for historical central government decisions, and baselines no longer resemble the economy of the early 2010s.

Considering local government funding overall, it appears that government has once again opted for short-term sticking plasters to plug gaps rather than deliver any long-term solutions - particularly regarding social care. Further council tax increases risk heaping more of the funding burden on a tax that is long overdue reform, and business rates continues to  be propped up by freezing rates and ever more reliefs. While these funding interventions may help boroughs get through the current crisis – these stop-gap  solutions show central government continues to think both top-down and short-term. Looking beyond this parliament, new policy solutions must surely be required to ensure local government can be funded in a sustainable way. 

London Councils will respond to the PLGFS consultation by 16 January 2023 and make the case for a better balance of funding and a broader range of revenue raising powers, to ensure they can continue to deliver vital local services to Londoners.

₁Provisional local government finance settlement: England, 2023 to 2024