Blog 10th August 2018

Aug 10th 2018, 15:08

Blog 10th August 2018

In this week’s blog, I refer to: BBC News, HM Treasury, Bank of England, Interest rates, Office for National Statistics, Local Government, Housing, Philip Hammond, Ministry for Housing & Local Government, Local Government Association, Service Charges, Seminars and Training.

The BBC News has reported significant reductions in the value of Sterling against the Euro and the Dollar. If this decline in value continues the GB Pound will be worth less than the Euro by the end of the month.

Since 2008 it has been the policy of the HM Treasury and the Bank of England to prop up Britain’s faltering economy through maintaining an artificially low rate of interest. The idea is that this encourages people to borrow and spend rather than to save, thus increasing consumer demand in the economy to compensate for the low level of demand from investment and exports. According to the Office for National Statistics this policy led to the average household spending £900 more than it earned last year. However, this monetary policy also puts downward pressure on the value of Sterling.

Last week, the Bank of England increased interest rates and signalled that further interest rate increases are on the way. It appears to me that the Bank of England and the Treasury are losing room for manoeuvre. They cannot maintain low interest rates because they want to support the value of the GB Pound. However, they do not want to increase them because that would reduce demand and push the economy into recession. They are attempting a delicate balancing act, but I suspect this will prove unsustainable.

Since 2008, this monetary policy has been accompanied by a fiscal policy based on government boosting demand in the economy by running a significant deficit that has seen the level of government debt mushroom. While much has been said about ‘austerity’ this has affected only selected budgets such as local government and housing. In his budget in November 2017, Philip Hammond announced increases in expenditure and reductions in taxation. I suspect this fiscal policy will also prove unsustainable.

Today, it has been announced that economic growth during the second quarter of the year was 0.4%. The government are crowing about this being a fantastic success. For most of the period since 1945, governments would have regarded a growth rate of 0.4% as a pathetic failure.

I am sometimes accused of being a pessimist, but I think a financial crisis is inevitable and may not be too far off. The consequences for public services are likely to be serious.

My briefing paper on the 2017 budget and its implications for public services can be viewed or downloaded from here.

Local authority funding in England has undergone considerable upheaval since 2010. Central government grant funding has been substantially reduced; after falling in real terms to 2015, council tax is now being increased; and, in response to concerns about funding social care, new grants have been made available to fund it. Since 2013, business rate retention has rewarded councils with a share of growth in business rate revenues.

In February 2016, the Ministry for Housing & Local Government (MHCLG) complemented these changes with the announcement of a ‘fair funding review’, followed by consultations in July 2016 and December 2017. The Fair Funding Review will affect how funding is allocated and redistributed between local authorities from 2020 onwards. It is expected to use three main ‘cost drivers’: population, deprivation and sparsity, together with additional cost drivers related to specific local authority services.

How this will be done is the subject of further consultation up to mid-2019; and it will also be influenced by discussions within several joint working groups between the Ministry of Housing, Communities and Local Government and the Local Government Association (LGA). ‘Indicative numbers’ for funding allocations to individual councils are expected to be published by spring-summer 2019, and the review is intended to be implemented in April 2020.

Earlier in 2018, the Local Government Association commissioned TRL Insight, supported by AWICS, to deliver two separate models to focus on the main parts of Government’s Fair Funding Review of local authority relative funding needs and resources.

The Local Government Association intends that these models will provide member authorities with a set of tools to evaluate the impact of future proposals arising from the fair funding review, or to enable them to consider proposals of their own.  They will also use these tools to help inform policy discussions.

Neither of the two models, or the results they produce, are intended to signal any policy direction by the Local Government Association. This piece of work is also separate from the Association's wider efforts around securing a sustainable quantum of funding for local government.

The Local Government Association remains clear that for the fair funding review to lead to a fair and sustainable result it needs to be accompanied by additional funding for local government. In their latest analysis launched at their 2018 conference, they estimated that local services face a funding gap of £7.8billion by 2025 if no action is taken at the 2019 Spending Review.

The Relative Needs Assessment Model allows for the creation of up to thirteen formulae to make up a combined relative needs assessment. The user can specify the amount of funding being distributed based on each formula.  Each of the formulae is built to consist of up to twelve cost drivers, and they can be weighted individually.

The model contains over a hundred built-in cost drivers that the user can choose from. They are grouped (but not limited to) specific council service areas to make the process of building formulae quicker. Users of the model can also input up to fourteen custom cost drivers, provided they have the data for each individual local authority to which they would apply. 

Once a desired number of formulae, indicators and weightings is in place, the model provides the calculation of what this combination would mean in terms of funding for individual local authorities, regional totals and totals based on local authority type. Finally, the model compares the relative needs assessment shares to the shares that were in place when they were last recalculated for 2013/14 to provide an indication of whether a given authority is better or worse off under the new assessment.  

The relative council tax adjustment model calculates the council tax deduction that is part of the relative resource assessment. The deduction is subtracted from the assessed relative needs to calculate funding baselines for individual local authorities.

While each of these models are manipulated in isolation, their results could also be looked at in combination.

For more information about the Fair Funding Review, the financial models, and the role that AWICS has played, please click here.

Our next seminar is on ‘All You Want to Know about Service Charges in Social Housing’ and will be held in London on 11th September 2018.

Service charges are an integral part of landlords' work in financing value for money services and sustaining customer satisfaction. They have always been relatively complex but with increased financial challenges and legal and financial complexity there is an increased need to understand how service charging works. This seminar gives an introduction and overview to this important subject and is fully up to date with all developments.

This seminar is proving very popular, but we still have a few places available. For more information or to make a booking, please click here.

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