The Local Government Finance Environment
The cost of local authority services such as
those provided by Thanet District Council are funded primarily from
fees and charges for services, General Government Grant (which
includes a share of income taxes and business rates), the Council
Tax and other grants.
The Council is able to generate a substantial
amount of income from charging for a range of discretionary
services, however the ability to raise revenues through this route
is limited, due to the constraints that are placed on the Council
through a variety of different pieces of legislation.
The General Government Grant is allocated by a
complex model which amongst other things takes account of the
relative need of an area and the ability to raise taxes locally
(based on an area’s council tax base). Typically District
Council services have not fared well in the allocation of the
General Government Grant, with services such as Education and
Health having received the lion’s share in recent years.
To give some degree of consistency from year
to year, the Government sets a minimum level of grant increase,
known as ‘a floor’, for different types of service which guarantees
all local authorities will at least receive some grant. The floor
for District Councils has been set at only 1% for 2008/09, reducing
down to 0.5% for 2009/10 and 2010/11. However, there are no
additional funds to pay for this guaranteed minimum and so those
authorities that receive more than the minimum have their grants
reduced in proportion to how much over the minimum they are, to
cover it, known as ‘scaling back’.
The Council Tax system requires local
householders to contribute directly to the cost of local service
provision. The collection of the Council Tax is administered
by Thanet District Council on behalf of itself, Thanet Parish and
Town Councils, Kent County Council, the Kent and Medway Fire and
Rescue Authority and Kent Police Authority.
The element of Council Tax that relates
specifically to Thanet District Council is calculated after having
taken into account the expenditure needs of the Council and its
ability to fund this from charges for services, General Government
Grants, the use of reserves and other grant streams.
However, the Council is restricted in how much of its funding can
be raised from Council Tax due to ‘capping’.
Capping – for some years
Local Authorities have had to operate within what is referred to as
a ‘capping regime’. Capping powers are used by the Secretary
of State to enforce local authorities to set Council Tax increases
which don’t exceed Government expectations. Each year, as
part of the finance settlement, the Government announces its limits
for Council Tax increases, which for 2008/09 has been expressed as
“well under 5% in each of the next three years.” The Medium
Term Financial Strategy has been developed so as to accord with
this.
Although the Council is also responsible for
collecting business rates across the District, these are paid over
to Government and the Council is not able to use any of this to
fund its services directly.
As a result of the dependence upon Central
Government funding and the raising of revenues from its
communities, the development of the Council’s budget and Medium
Term Financial Plans can not be undertaken in isolation. They
must take into account the national economic context as it affects
the Local Government Settlement and the ability to increase
revenues locally.