Archived decisions

Appendix 1

Local Government Finance Settlement 2006/07 and 2007/08

Headlines

The Government confirmed its local government finance settlement on 31 January 2006. There are no major policy changes to the provisional national totals published by the Government on 5 December 2005 for consultation.

Some indicator data used for individual local authorities in the formulae have been revised.

Hampshire County Council's final formula grant for 2006/07 has reduced by £52,000 (0.04%) compared with the provisional consultation figures issued in December 2005. The County Council's grant for 2006/07 remains at the floor damping level. The reduction arises because the Government has made a minor change to the adjusted base position for 2005/06 used to calculate the 2.0% increase for authorities at the floor.

The Government has also confirmed the grant figures issued in December 2005 for 2007/08, again with minor amendments. This is the first time that the Government has issued firm figures for two years, 2006/07 and 2007/08, as a stage in its move towards three-year settlements. The County Council's formula grant for 2007/08 is £577,000 (0.5%) lower than the provisional figure announced in December 2005.

The key points of the national settlement for 2006/07 are:

· 3.0% increase in formula grant nationally, after adjusting for function and funding changes, including the transfer of schools funding to the ring-fenced specific grant called the Dedicated Schools Grant (DSG)

· 6.0% increase in DSG for schools nationally compared with equivalent figures for 2005/06

· £328m additional formula grant in 2006/07 towards spending pressures

· up to £800m of new burdens recognised by Government, by means other than increased grant or to be discussed further with local government

· new `Four-Block Model' for grant distribution, with formula spending shares (FSS) renamed as relative needs formulae (RNF)

· grant distribution formulae revised, with Census 2001 data now included

· a `resource equalisation' uplift in the Government's control totals for personal social services, police and fire to move them closer to actual spending levels - with the effect of transferring grant away from `lower need / higher resources' areas such as the South East - similar to the uplift in 2003/04

· continued use of floors to limit general grant losses - and to dampen losses on children's and younger adults personal social services RNFs

· amendments to the formula grant allocations for 2004/05 and 2005/06 to correct errors mainly on population data

· continued threat of capping for "excessive" increases in council taxes, with an expectation that the average increase will be less than 5%

The provisional national settlement for 2007/08 includes:

· 3.7% increase in formula grant nationally

· 6.0% increase in DSG for schools nationally

· over £500m additional formula grant in 2007/08 towards spending pressures

· continued use of floors to limit grant losses

· Government expectation that council tax increases in 2007/08 will also average 5%

· no statutory requirement to set a council tax now for 2007/08.

Further details of the national and local grant settlements are attached.

Figures for 2005/06 throughout this Appendix have been adjusted for changes in function and transfers to or from specific grants, in order to make them comparable with the figures for 2006/07.

The contents of this Appendix listed on the following page.

Contents

page 4: The Four-Block Model

page 5: Formula Spending Shares and Relative Needs Formulae - a comparison

page 6: Relative Needs Formulae 2006/07 - England and Hampshire County Council

page 7/8: Floor Damping 2006/07

page 9: Analysis of Government Support 2006/07 - England

page 9: Business Rates 2006/07

page 10: Grant increases 2006/07 by Region and Class of Authority

page 11: Grant increases 2006/07 for County Councils

page 12: County Councils' Formula Grant 2006/07 per head after Floor Damping

page 13: Specific Grants 2006/07 - England total

page 14: Specific Grants 2006/07 for Education and Children's Services

page 15: Specific Grants 2006/07 for Adult Services

page 15: Specific Grants 2006/07 for Environmental, Protective and Cultural Services

page 16: Calculating Hampshire County Council's council tax for 2006/07

page 17: Relative Needs Formulae for 2007/08 - England and Hampshire County Council

page 18: Formula Grant 2007/08 - England and Hampshire County Council

page 19: Specific Grants 2007/08 - England total

page 20: Floor Damping 2007/08

page 21: Analysis of Government Support 2007/08 - England and Hampshire County Council

page 22: The Government's reserve capping powers

page 23: Glossary of Terms used in the Revenue Grant Distribution System

Annex 1: The County Council's letter of response to the Government's consultation on the provisional settlement, 9 January 2006

Annex 2: The Office of the Deputy Prime Minister's reply, 17 January 2006

Annex 3: The County Treasurer's reply, 23 January 2006

The Four-Block Model

The Government has introduced a new system for distributing formula grant between local authorities, using four blocks for:

· relative needs - intended to equalise local authorities' need to spend. Assessed through relative needs formula (RNF), similar to formula spending shares (FSS) but expressed for each local authority as tiny fractions of total assessed need in England, instead of as monetary values

· relative resources - intended to equalise local authorities' resources from the council tax. Assessed using the council tax base and expressed as a negative amount so that higher resource areas, such as Hampshire, receive less grant

· central allocation - the remainder of the available formula grant after needs and resources have been equalised, allocated on a per capita basis

· floor damping - to make sure that all authorities receive a minimum percentage increase in grant, financed by scaling back the grant of authorities that are above the floor.

The national totals are shown below, compared with County Council's formula grant for 2006/07.

	England		Hampshire County Council
	£m	%	£m	%
Relative needs amount	14,821	71.0	99.449	82.6
Relative resource amount	-5,130	-24.6	-133.194	-110.7
Central allocation	11,187	53.6	132.463	110.1
Floor damping	0	0.0	21.625	18.0
	----------	----------	-----------	----------
Total excluding police grant	20,878	100.0	120.343	100.0
		----------	-----------	----------
Police grant	3,936
	----------
Total formula grant	24,814
	----------

Formula Spending Shares and Relative Needs Formulae - a comparison

The Relative Needs Formulae (RNF) for 2006/07 and the Formula Spending Shares (FSS) for 2005/06 for England and Hampshire County Council, below, illustrate how the system under the new Four-Block Model has become even less understandable.

	England			Hampshire
	FSS	RNF		FSS	RNF
	2005/06	2006/07		2005/06	2006/07
	adjusted			adjusted
	£m			£m
Adult Social Services
Adult Social Care	10,369	0.16749768		205.4	0.00305392
Adult Social Care damping	0	0.00000000		0.0	0.00026638
	---------	---------------		---------	---------------
Total Adult Services	10,369	0.16749768		205.4	0.00332030
Children's Services
Youth and Community	571	0.00949950		9.8	0.00016366
LA Central Education Functions	2,610	0.04155749		58.3	0.00090450
Children's Social Care	4,375	0.07284560		64.7	0.00109925
Children's Social Care damping	0	0.00000000		0.0	-0.00003291
	---------	---------------		---------	---------------
Total Children's Services	7,556	0.12390259		132.8	0.00213450
Highway Maintenance	2,054	0.03199865		46.0	0.00071938
Environmental, Protective and
Cultural Services	11,769	0.18720868		84.0	0.00134292
Capital Financing	3,638	0.06143061		62.1	0.00102733
	---------	---------------		---------	---------------
Total excluding Police and Fire	35,386	0.57203821		530.3	0.00854443
Police	4,753	0.07728726		-	-
Fire	1,789	0.02878762		-
	---------	---------------		---------	---------------
Total	41,928	0.67811309		530.3	0.00854443
	---------	---------------		---------	---------------

The FSSs for 2005/06 shown above have been adjusted for function and funding changes, including the introduction of the Dedicated Schools Grant, and for Resource Equalisation.

Each of the RNF factors is published by the Government to 15 decimal places. They are derived from setting the England total for FSSs for 2005/06 as 1.000000000000000 (ie, £64,180bn). Each 0.000015581090002 represents £1m.

Relative Needs Formulae 2006/07 - England and Hampshire County Council

The percentage increases in RNF show the Government's priority for Children's Services.

	England		Hampshire
	Increase		Increase
	2006/07		2006/07
	%		%
Adult Social Services	+3.7		+3.7
Children's Services
Youth and Community	+6.8		+7.4
LA Central Education Functions	+2.2		-0.5
Children's Social Care	+6.9		+5.8
Total Children's Services	+5.2		+3.2
Highway Maintenance	0.0		+0.4
Environmental, Protective and Cultural Services	+2.1		+2.5
Capital Financing	+8.4		+6.2
Total excluding Police and Fire	+3.8		+3.4
Police	+4.4
Fire	+3.3
Total all services	+3.8

Floors for Formula Grant 2006/07

		Floor			Scaling of other LAs *
		%	No of LAs affected		%		No of LAs affected
Education and social services authorities		+2.0	71		-84.5		79
Police authorities		+3.1	21		-97.2		17
Fire authorities		+1.5	9		-87.2		22
District councils		+3.0	84		-51.0		154
* the scheme is self-financing for each group of authorities. The cost of giving additional grant to authorities that are below the floor, such as Hampshire County Council, is financed by scaling back the above-floor increases in grant for all other authorities by the percentages shown. The scaling back required is severe. Education and social services authorities that are above the floor lose 84.5% of their grant above the floor.

Education and Social Services Authorities' Formula Grant Increases 2006/07

Floors in the Relative Needs Formulae for Children and Younger Adults Personal Social Services 2006/07

	Floor		Scaling of other LAs *
	%	No of LAs affected	%	No of LAs affected
Children	+2.7	49	-50.9	101
Younger Adults	+2.7	72	-88.5	78
For Children's Services, Hampshire County Council is subject to scaling, losing grant of £2.1m in 2006/07.
For Younger Adults, the County Council is at the floor, receiving additional grant of £17.1m in 2006/07 to reach the floor level.
The net amount of grant at risk when the Personal Social Services floor scheme is unwound, based on the grant settlement for 2006/07, is £15m.

Analysis of Government Support 2006/07 - England

	2005/06 adjusted		2006/07		Change
	£m	%	£m	%	%
Dedicated schools grant	25,072	42.2	26,576	42.8	+6.0
Police grant	3,895	6.5	3,936	6.3	+1.1
Other specific grants	10,237	17.2	10,672	17.2	+4.2
	---------	--------	---------	--------
Total specific grants	39,204	65.9	41,184	66.3	+5.1
Revenue support grant	2,256	3.8	3,443	5.5	+52.6
	---------	--------	---------	--------
Total Government grants	41,460	69.7	44,627	71.8	+7.6
Business rates	18,000	30.3	17,500	28.2	-2.8
	---------	--------	---------	--------
Total Government support	59,460	100.0	62,127	100.0	+4.5
	---------	--------	---------	--------
Includes Formula grant:
Revenue support grant	2,256	3.8	3,443	5.5	+52.6
less for specified bodies	-63	-0.1	-65	-0.1	+2.6
Business rates	18,000	30.3	17,500	28.2	-2.8
Police grant	3,895	6.5	3,936	6.3	+1.1
	---------	--------	---------	--------
Total Formula grant	24,088	40.5	24,814	39.9	+3.0
	---------	--------	---------	--------

Business Rates 2006/07

The rate in the £ has been increased in line with the change in the Retail Price Index in September 2005 of 2.7%.

	2005/06	2006/07
	p	p
Rate in £
Standard	42.2	43.3
Small businesses	41.5	42.6

Grant increases 2006/07 by Region - England average +3.0%

Grant increases 2006/07 by class of authority

The number of authorities in each class are shown at the foot of the graph

Grant increases 2006/07 for County Councils



County councils' average: before floor damping +0.9%, after floor damping +2.6%

County Councils' Formula Grant 2006/07 per head - after floor damping

Specific Grants 2006/07 - England

A 5.1% increase in specific grants in total with above average increases for Education, and Children's Services.

	2005/06	2006/07	Increase
	adjusted
	£m	£m	%
Education
Dedicated Schools Grant	25,072	26,576	+6.0
Other Education Grants	3,604	3,890	+7.9
Personal Social Services
Children	1,150	1,320	+14.7
Adults	1,655	1,582	-4.4
Police
Principal Grant	3,895	3,936	+1.1
Other Police Grants	559	588	+5.2
Fire	1	1	0.0
Environmental, Protective and
Cultural Services	389	392	+0.7
Capital Financing - PFI	425	455	+7.1
Other
Neighbourhood Renewal	525	525	0.0
Greater London Authority	38	38	+1.0
Local PSA Reward Grant	176	196	+11.4
Supporting People	1,715	1,685	-1.7
	-----------	-----------
Total Specific Grants	39,204	41,184	+5.1
	-----------	-----------

Specific Grants 2006/07 for Education

	2005/06	2006/07	Increase
	adjusted
	£m	£m	%
Dedicated Schools Grant	25,072	26,576	+6.0
School Development Grant	1,962	2,042	+4.1
School Standards	912	1,012	+11.0
Ethnic Minority Achievement	168	181	+7.7
Targeted Primary Strategy	125	168	+34.4
Targeted Secondary Strategy	88	109	+23.9
Extended Schools	77	80	+3.9
Music Services	59	62	+5.1
Targeted School Meals Grant	30	50	+66.7
School Meals	30	30	0.0
Aimhigher	34	34	0.0
Secondary: LA Co-ordination	35	35	0.0
Primary Strategy: LA Co-ordination	30	30	0.0
Secondary: Behaviour and Attendance	14	14	0.0
Playing for Success	9	12	+33.3
Education Health Partnerships	9	9	0.0
Fresh Start and Partnership	8	8	0.0
School Travel Advisers	7	7	0.0
School Improvement Partners	7	7	0.0
	---------	---------
Education specific grants	28,676	30,466	+6.2
	---------	---------

Specific Grants 2006/07 for Children's Personal Social Services

	2005/06	2006/07	Increase
	adjusted
	£m	£m	%
General Sure Start Grant	862	1,111	+28.9
Children's Services	130	152	+17.4
Teenage pregnancy support	33	30	-10.3
Unaccompanied asylum seeking children	11	12	+9.1
Youth Opportunity Grant	10	11	+10.0
Safeguarding children	90	0	-100.0
Other	14	4	-72.8
	-------	-------
Children's PSS specific grants	1,150	1,320	+14.7
	-------	-------

Specific Grants 2006/07 for Adult Personal Social Services

	2005/06	2006/07	Increase
	adjusted
	£m	£m	%
Access and systems capacity	642	546	-15.0
Preserved rights	330	297	-9.9
Carers	185	185	0.0
Mental health	133	133	0.0
National training strategy	108	108	0.0
Delayed discharge	100	100	0.0
Child/adolescent mental health	91	91	0.0
Human resources development strategy	50	50	0.0
Preventative Technology	0	30	-
Partnerships for Older People Projects	0	20	-
Aids support	16	16	0.0
Individual Budget Pilots	0	6	-
	-------	-------
Adults PSS specific grants	1,655	1,582	-4.4
	-------	-------

Specific Grants 2006/07 for Environmental, Protective and Cultural Services

	2005/06	2006/07	Increase
	adjusted
	£m	£m	-%
Waste performance and efficiency	90	105	+16.7
Planning delivery	130	104	-20.0
Homelessness strategies	45	66	+45.3
Rural bus subsidy	53	54	+2.5
Bus Challenge and Kickstart	29	18	-37.9
De-trunking roads	39	42	+7.7
Beacons	3	3	0.0
	-------	-------
EPCS specific grants	389	392	+0.7
	-------	-------

Calculating Hampshire County Council's council tax - based on the recommendations for 2006/07

	£/Band D
Council tax implied by the Government's grant distribution system	863.75
Effect of spending above the level implied in the Government's grant
distribution system, by 3.6%	+40.31
Less surplus on council tax collection funds from previous years	-6.66
Add effect of district councils' assumptions about losses on council tax
collection in 2006/07	+13.22
	----------
Council tax for 2006/07	910.62
	----------

Provisional Settlement for 2007/08

For the first time the Government has published two-year figures for 2006/07 and 2007/08 as part of a process that will eventually lead to three-year settlements.

The following tables summarise the provisional figures for 2007/08.

Relative Needs Formulae 2007/08 - England and Hampshire

	England				Hampshire
	RNF	RNF			RNF		RNF
	Adjusted				Adjusted
	2006/07	2007/08		%	2006/07		2007/08	%
Adult Social Services
Adult Social Care	0.16767239	0.17424267		+3.9	0.00305772		0.00319420	+4.5
Adult Social Care damping	0.00000000	0.00000000		-	0.00026638		0.00025964	-2.5
	--------------	--------------			---------------		---------------
Total Adult Services	0.16767239	0.17424267		+3.9	0.00332410		0.00345384	+3.9
Children's Services
Youth and Community	0.00949950	0.01006945		+6.0	0.00016366		0.00017385	+6.2
LA Central Education Functions	0.04155749	0.04286461		+3.1	0.00090450		0.00093308	+3.2
Children's Social Care	0.07284560	0.07596182		+4.3	0.00109925		0.00114346	+4.0
Children's Social Care damping	0.00000000	0.00000000		-	-0.00003291		-0.00003385	+2.8
	--------------	--------------			---------------		---------------
Total Children's Services	0.12390259	0.12889588		+4.0	0.00213450		0.00221654	+3.8
Highway Maintenance	0.03199865	0.03199865		0.0	0.00071938		0.00071938	0.0
Environmental, Protective and
Cultural Services	0.18701752	0.19406184		+3.8	0.00133883		0.00138953	+3.8
Capital Financing	0.05977512	0.06359430		+6.4	0.00101399		0.00108165	+6.7
	--------------	--------------			---------------		---------------
Total excluding Police and Fire	0.57036627	0.59279334		+3.9	0.00853080		0.00886094	+3.9
Police	0.07728726	0.08081232		+4.6	-		-	-
Fire	0.02878762	0.02973807		+3.3				-
	--------------	--------------			---------------		---------------
Total	0.67644115	0.70334373		+4.0	0.00853080		0.00886094	+3.9
	--------------	--------------			---------------		---------------

Formula Grant 2007/08 - England

	2006/07		2007/08		Increase
	adjusted
	£m	%	£m	%	%
Relative needs amount	14,821	71.4	15,337	71.0	+3.5
Relative resource amount	-5,130	-24.7	-5,309	-24.6	+3.5
Central allocation	11,186	53.8	11,576	53.6	+3.5
Floor damping	0	0.0	0	0.0	0.0
Adjustments	-106	-0.5	0	0.0	-100.0
	----------	----------	----------	----------
Total excluding police grant	20,771	100.0	21,604	100.0	+4.0
		----------		----------
Police grant	3,936		4,029		+2.4
	----------		----------
Total formula grant	24,707		25,633		+3.7
	----------		----------

Formula Grant 2007/08 - Hampshire County Council

	2006/07		2007/08		Increase
	adjusted
	£m	%	£m	%	%
Relative needs amount	99.449	83.2	103.535	84.4	+4.1
Relative resource amount	-133.194	-111.5	-137.831	-112.3	+3.5
Central allocation	132.463	110.9	133.695	108.9	+0.9
Floor damping	21.626	18.1	23.293	19.0	+7.7
Adjustments	-0.878	-0.7	0	0.0	-100.0
	-----------	----------	-----------	----------
Total	119.466	100.0	122.692	100.0	+2.7
	-----------	----------	-----------	----------

Specific Grants 2007/08 - England

	2006/07	2007/08	Increase
	adjusted
	£m	£m	%
Education
Dedicated Schools Grant	26,576	28,171	+6.0
Other Education Grants	3,890	4,118	+6.0
Personal Social Services
Children	1,320	1,294	-1.9
Adults	1,582	1,600	+1.1
Police
Principal Grant	3,936	4,029	+2.3
Other Police Grants	588	840	+42.9
Fire	1	1	0.0
Environmental, Protective and
Cultural Services	392	390	-0.4
Capital Financing - PFI	455	535	+17.6
Other
Neighbourhood Renewal	525	525	0.0
Greater London Authority	38	38	+1.0
Local PSA Reward Grant	196	196	0.0
Supporting People	1,685	1,696	+0.7
	-----------	-----------
Total Specific Grants	41,184	43,433	+5.5
	-----------	-----------

Floors for Formula Grant 2007/08

		Floor			Scaling of other LAs *
		%	No of LAs affected		%		No of LAs affected
Education and social services authorities		+2.7	60		-68.8		90
Police authorities		+3.6	21		-97.9		17
Fire authorities		+2.7	8		-91.1		23
District councils		+2.7	64		-38.4		174
* the scheme is self-financing for each group of authorities. The cost of giving additional grant to authorities that are below the floor, such as Hampshire County Council, is financed by scaling back the above-floor increases in grant for all other authorities by the percentages shown. The scaling back required continues to be severe. Education and social services authorities that are above the floor lose 68.8% of their grant above the floor. For police authorities, it is 97.9% which restricts the range of grant increases for police authorities from 3.6% to 3.8%.

Floors in the Relative Needs Formulae for Children and Younger Adults Personal Social Services 2007/08

	Floor		Scaling of other LAs *
	%	No of LAs affected	%	No of LAs affected
Children	+2.7	46	-70.0	104
Younger Adults	+2.7	70	-83.5	80
For Children's Services, Hampshire County Council is subject to scaling, losing grant in 2007/08 of £2m.
For Younger Adults, the County Council is at the floor, receiving additional grant in 2007/08 of £16m to reach the floor level.
The net amount of grant at risk when the Personal Social Services floor scheme, based on the provisional grant settlement for 2007/08, is unwound is £14m.

Analysis of Government Support 2007/08 - England

	2006/07		2007/08		Change
	adjusted
	£m	%	£m	%	%
Dedicated schools grant	26,576	42.9	28,171	43.3	+6.0
Police grant	3,936	6.3	4,029	6.2	+2.3
Other specific grants	10,672	17.2	11,233	17.2	+5.3
	---------	--------	---------	--------
Total specific grants	41,184	66.4	43,433	66.7	+5.5
Revenue support grant	3,336	5.4	4,163	6.4	+24.8
	---------	--------	---------	--------
Total Government grants	44,520	71.8	47,596	73.1	+6.9
Business rates	17,500	28.2	17,500	26.9	0.0
	---------	--------	---------	--------
Total Government support	62,020	100.0	65,096	100.0	+5.0
	---------	--------	---------	--------
Includes Formula grant:
Revenue support grant	3,336	5.4	4,163	6.4	+24.8
less for specified bodies	-65	-0.1	-58	-0.1	-10.8
Business rates	17,500	28.2	17,500	26.9	0.0
Police grant	3,936	6.3	4,029	6.2	+2.3
	---------	--------	---------	--------
Total Formula grant	24,707	39.8	25,634	39.4	+3.7
	---------	--------	---------	--------

Analysis of Formula Grant 2007/08 - Hampshire County Council

	2006/07		2007/08		Change
	adjusted
	£m	%	£m	%	%
Revenue support grant	split not published by Government
Business rates
	-------------	--------	-------------	--------
Formula grant	119.466	100.0	122.692	100.0	+2.7
	-------------	--------	-------------	--------

The Government's reserve capping powers - procedure and timetable 2006/07

Late March or April 2006	The First Secretary of State (the Deputy Prime Minister) decides whether to invoke capping powers - after councils, including police and fire authorities, have set their budgets for 2006/07. He publishes the criteria to be used for the capping limits for different categories of local authorities. Criteria must include a comparison with budgets of a previous year and may include a comparison with a previous year's council tax.
	The First Secretary of State also publishes the proposed capping limit for the 2006/07 budget for any individual authorities that he intends to cap. May also set a further budget `target' for the authority to reach in a future year.
	Local authorities have 21 days in which to challenge their capping limits.
July 2006	The First Secretary of State decides whether to proceed with imposing capping limits. If he does, he lays an Order before Parliament setting the maximum budgets for the local authorities that he intends to cap.
	If he decides not cap an authority in 2006/07 after all, he may accept its budget for 2006/07 and, instead, `nominate' it for possible capping in 2007/08. Alternatively, he may accept the budget for 2006/07 for the purposes of setting the council tax for 2006/07 but can then set a lower notional budget for 2006/07 that can be used to measure increases in future years for capping purposes. The First Secretary of State would inform the authorities of his decisions in such cases in writing. Both alternatives avoid the costly re-billing of council tax payers.
	If the capping limits for 2006/07 are approved by Parliament, each capped authority must recalculate its budget. Major precepting authorities including the County Council and the Fire and Police Authorities must re-set their precepts. Billing authorities must reissue the council tax bills.
Late November / early December 2006	The First Secretary of State confirms the `nomination' and sets a capping limit for 2007/08 or a `target' for the authority's budget to reach by a specified future year.
nb All dates are approximate and are based on the actual timetable for the Government's capping of budgets in 2005/06.

Glossary of Terms used in the Revenue Grant Distribution System

Aggregate External Finance (AEF)

The total level of support the Government provides to local authorities. This support is normally made up of Revenue Support Grant, police grant, specific formula and ring-fenced grants and the amount redistributed from business rates.

Amending Report

May be issued by the Government to correct errors subsequently discovered in the data used in the Local Government Finance settlement. Only one Amending Report may be issued for each settlement year.

Area Cost Adjustment (ACA)

The top-up factor applied to Formula Spending Shares (FSS) to reflect higher costs, mostly pay. Originally applied to authorities in London and the South East but, since 2003/04, extended to other areas of England with higher costs.

Assumed National Council Tax (ANCT)

This term is no longer used in the Four-Block Model which has been introduced from 2006/07 for distributing revenue support grant. Prior to 2006/07, ANCT was used as follows. The difference between Total Assumed Spending and Aggregate External Finance is approximately the amount that would be raised in Council Tax if local authorities as a whole spent at the level of their Formula Spending Shares. Dividing this total amount by the total Council Tax base produces an assumed national tax rate. This then gives the standard level of Council Tax for a band D property if all authorities spent at the level of their Formula Spending Share. It is used to work out how the Revenue Support Grant should be shared between authorities. Formerly known as the `Council Tax for Standard Spending'.

Billing authorities

These are the 353 authorities that collect Council Tax - district councils, London

boroughs, and unitary authorities.

Budget requirement

This is the amount each authority estimates as its planned spending, after deducting

any income it expects to raise from fees and charges for services and specific grants from the Government and any funding from reserves. The budget requirement is set before the beginning of the financial year and financed from general Government grant (Revenue Support Grant), business rates and the council tax.

Business rates

These rates, called the National Non-Domestic Rates (NNDR), are the means by which local businesses contribute to the cost of providing local authority services. All business rates are paid into a central pool. The pool is then divided between local authorities, along with the Revenue Support Grant, as part of the Formula Grant. Prior to 2006/07, NNDR was allocated per head of resident population in each authority's area.

Capping

This is the term used when the Government limits a local authority's budget requirement, and hence the council tax that the local authority sets.

Central Allocation

A component of the Four-Block Model introduced by the Government in 2006/07, allocated between local authorities on a per capita basis. It represents the balance of the national total for Formula Grant after Relative Needs and Relative Resources have been equalised.

Collection Fund Surplus or Deficit

Billing authorities such as the district councils maintain a collection fund into which they pay all the council taxes they collect in their area and from which they pay precepts to the precepting authorities such as the County Council, fire and police authorities. If they collect more or less than they expected at the start of the year, the surplus or deficit is shared with the precepting authorities in proportion to their council taxes. These surpluses or deficits have to be returned to the council taxpayer in the following year through lower or higher council taxes. They may not be used to finance additional spending.

Control Totals

Prior to 2006/07, the Government published the national totals for Formula Spending Shares for each major service area. Under the Four-Block Model introduced in 2006/07, these control totals are hidden in the system's methodology.

Council Tax

A local tax on domestic property set by local authorities in order to meet their budget

requirement.

Council Tax base

The Council Tax base of an area is the number of band D equivalent properties. The number of properties in each of the eight council tax bands A to H are counted. The totals are then converted to an equivalent number of band D properties. For example, one band H property is equivalent to two band D properties, because the taxpayer in a Band H property pays twice as much council tax. The ratios between the council tax bands are shown in the table below. The amount of revenue which could be raised by the council tax in an area is calculated allowing for discounts and exemptions but, for the purpose of the Formula Grant calculation, assuming that everyone pays.

Council Tax bands

There are eight Council Tax bands. How much Council Tax each household pays

depends on the value of their home. The bands are set out below.

Council Tax bands

	Value of home estimated at April 1991	Proportion of the tax due for a band D property
Band A	under £40,000	66.7 % (ie, 6/9ths)
Band B	£40,001 - £52,000	77.8 % (7/9ths)
Band C	£52,001 - £68,000	88.9 % (8/9ths)
Band D	£68,001 - £88,000	100.0 % (9/9ths)
Band E	£88,001 - £120,000	122.2 % (11/9ths)
Band F	£120,001 - £160,000	144.4 % (13/9ths)
Band G	£160,001 - £320,000	166.7 % (15/9ths)
Band H	over £320,001	200.0 % (18/9ths)

Council Tax discounts and exemptions

Discounts are available to people who live alone (25%) and owners of dwellings that are not anyone's main home. Billing authorities have been able to reduce the discount for second homes from 50% to a minimum of 10% from 1 April 2004. Council Tax is not charged for certain classes of properties, such as those occupied only by students.

Damping

Damping is used by the Government to phase the impact of changes to the revenue grant distribution system, to give stability in funding for individual local authorities. It limits the effect these changes have on Council Tax levels and is intended by the Government to give authorities more time to adjust their spending following the changes. Damping of grant is achieved by setting a minimum floor level for the percentage increase in grant, with the cost of providing this additional level of grant met by scaling back the grant allocated to authorities whose percentage increase in grant is above the floor minimum. Prior to 2005/06, ceilings limited the maximum increase, but were removed to allow fast growing authorities to receive greater benefit from increases in grant. Damping has also been introduced in 2006/07 in the Relative Needs Formulae (RNF) for children's services and younger adults personal social services to limit losses as a result of introducing new RNF methodologies.

Distributable Amount

This is the estimated total amount in the business rate pool that is available to be

distributed to local authorities. The business rates are collected by local authorities

and paid into a national pool and then redistributed to all authorities.

Environmental, Protective and Cultural Services (EPCS)

The RNF block for all other services, ie, excluding adult services, children's services, police, fire, highway maintenance and capital financing costs.

Fixed Costs

There is a separate RNF allocation for each authority's fixed costs, which are defined by the Government as the element of an authority's costs which does not vary with the size of the authority. This mainly consists of the costs of the corporate and democratic core of an authority, sometimes described as "the costs of being in business, not the costs of doing business".

Floor Damping

Floors and Ceilings

See Damping.

Formula Grant

Comprises Revenue Support Grant, redistributed business rates and, for police authorities, the police principal grant.

Formula Spending Shares (FSS)

Between 2003/04 and 2005/06, FSSs were used by the Government to provide a basis for distributing its Formula Grant between local authorities. Formulae were used to calculate each authority's share of the national Control Totals for seven main service blocks: education, personal social services, police, fire, highway maintenance, capital financing and environmental, protective and cultural services. Typically, each formula includes a basic amount per client, topped up for deprivation and the Area Cost Adjustment. From 1990/01 to 2002/03, Standard Spending Assessments (SSA) were used instead of FSSs. With the introduction of the Four-Block Model in 2006/07, the Government replaced FSSs with Relative Needs Formulae (RNF).

Four-Block Model

New system for calculating Formula Grant introduced by the Government in 2006/07, consisting of four block for Relative Needs, Relative Resource, Central Allocation and Floor Damping.

Indicators

In this context, information used in the calculation of Relative Needs Formulae, such as population, number of school children, number of elderly people or lengths of road.

Local Government Finance Settlement

The Local Government Finance Settlement is the annual determination of Formula Grant distribution as made by the Government and approved by Parliament. It includes:

· the totals of Formula Grant;

· how that grant will be distributed between local authorities; and

· the support given to certain other local government bodies.

The provisional settlement is announced by the Government for consultation in late November or early December. The consultation period ends in early January and the final settlement figures are announced in late January.

Net Revenue Expenditure (NRE)

This represents an authority's budget requirement and use of reserves.

Non-Domestic Rates

See business rates.

Precept

This is the amount of Council Tax income that precepting authorities (see below) need to provide their services. These authorities request the billing authorities to raise these amounts from council tax payers by issuing a formal precept. The amounts for all local authorities providing services in an area appear on one Council Tax bill, which is issued by the billing authority (district councils, unitary authorities, London boroughs and metropolitan districts).

Precepting authority

This is an authority which sets a precept to be collected by billing authorities through

the Council Tax bill. County councils, police authorities, the Greater London Authority, combined fire authorities and parish councils are all precepting authorities.

Receiving authorities

These are the 432 authorities that are eligible to receive Revenue Support Grant.

Relative Needs Formulae (RNF)

One component of the Four-Block Model introduced by the Government in 2006/07, intended to equalise spending needs between local authorities. Formulae similar to those previously used in Formula Spending Shares (FSS) are used to assess the local authorities' relative need to spend. The results, however, are expressed as fractions of total spending in England, instead of as monetary values. The formulae are based on an amount per client with top-ups for deprivation and other additional costs including the Area Cost Adjustment.

Relative Resource Amount

A component of the Four-Block Model introduced by the Government in 2006/07, intended to equalise resources between local authorities. It reflects the different capacity of local authorities to raise income from the Council Tax. It is a negative amount in the calculation of the Four-Block Model, with those authorities with higher levels of Council Tax resources having a higher negative Relative Resource Amount.

Reserves

This is a council's accumulated surplus income (in excess of expenditure) which can be used to finance future spending.

Resource Equalisation

The way in which the formula grant distribution system takes account of councils'

relative ability to raise council tax. Councils with a higher taxbase, because properties in their area are more highly valued, are able to raise more income from each £1 of council tax. "Resource equalization" has also been used by the Government to describe its action in uplifting its service Control Totals for FSS (in 2003/04) and RNFs (in 2006/07) to the national levels of actual spending by local authorities. This has the effect of transferring Formula Grant from areas of `lower need and higher resources' such as the South East to areas of `higher need and lower resources' such as the North and Midlands.

Revenue Expenditure

Expenditure financed by Aggregate External Finance (AEF) grants, council tax and the use of reserves.

Revenue Support Grant (RSG)

A Government grant forming part of the Formula Grant alongside the redistributed business rates and the police principal grant.

Ring-fenced grant

A grant paid to local authorities which has conditions attached to it that restrict the

purposes for which it may be spent.

Second homes discount

Billing authorities have been able to reduce the council tax discount given to owners of second homes from 50% to a minimum of 10% from 1 April 2004. The additional council tax income raised is shared between local authorities in the area in proportion to their precepts.

Share of Assumed National Council Tax (SANCT)

Prior to 2006/07, this was the portion of the Assumed National Council Tax (ANCT) attributable to each class of authority. Following the introduction of the Four-Block Model by the Government in 2006/07, no equivalent to ANCT is published.

Specific and Special Grants

Specific formula grants, targeted or ring-fenced grants are sometimes referred to as

specific or special grants. A specific grant is paid under a specific legislative power

whereas a special grant uses a general power to pay grants to councils.

Specific Formula Grant

A grant which is distributed outside the formula grant distribution system but with no

conditions attached as to how it is spent.

Specified Body

This is the term used for bodies (such as the Improvement and Development Agency for Local Government and the Employers' Organisation for Local Government) that are directly funded from Revenue Support Grant and provide central services for local government as a whole.

Standard Spending Assessment (SSA)

Between 1990/01 to 2002/03, SSAs were used by the Government to divide its general revenue grants between local authorities. This is now done by Formula Spending Shares (FSSs).

Targeted grant

A type of ring-fenced grant which has conditions attached which specify a broad

outcome.

Total Assumed Spending (TAS)

Prior to the introduction of the Four-Block Model in 2006/07, this was the amount of spending by local government as a whole which the Government assumes in its spending plans. An equivalent figure is not published by the Government in the Four-Block Model.

Total Formula Spending (TFS)

Prior to the introduction of the Four-Block Model in 2006/07, this was the total of Formula Spending Shares.

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