Local Authority funding

The funding received by individual Authorities varies significantly depending on the amount of Government grant, local council tax and the local need and availability of services, but they tend to be sourced as follows 1:

  • central government grants (75%)
  • council tax (10-25%)
  • fees and charges for council services (10-25%)

Central government grants are dictated by the Barnett formula 2 and are made up of a general grant and specific grants:

  • The general grant is largely funded by local business rates income, a tax on business premises collected by local government and re-distributed by central government
  • Specific grants are provided to pay directly for individual services, such as schools and housing. Local authorities can only spend this allocated grant money on the specified purposes.

Council tax is a tax collected directly by the Council and is calculated on residential property. Councils must hold a local referendum if they want to raise council tax above a threshold set by central government (two per cent in 2013). 3

Councils also raise funds through some of the services they provide, like rents from social housing, sport and leisure facilities, licensing or collecting fines. Most of these are ring-fenced and used to maintain the services they are collected from, but in some cases they can be used for other services. In recent years Councils have increased their revenue from services with a third of Councils raising more funds from services than Council tax. This can have the negative impact of excluding the most vulnerable citizens from access to services that should be available to all. 4

Central government plans public spending on a multi-year basis through Spending Reviews. Local Authorities find out their individual grant allocations for the next financial year through the Local Government Finance Settlement, which is published in December. Once the settlement has been approved by Parliament in February, Councils know the level of Government funding they will get and can set Council tax and service charges for the next year. The Local Government budget year runs from April to March.

Useful Links
  1. Local.gov.uk – Report on the Municipal Bond Agency – 2014
  2. 2014 – BBC- Devolution: What’s the Barnett Formula? – 2014
  3. 2014- Commons Library Standard Note – Local government in England: capital finance
  4. 2013- Audit Commission – Income from charges