Negative RSG compensation labelled ‘unfair’ by metropolitan councils

The government is proposing to compensate councils with negative revenue support grant (RSG) in 2020/21, it has announced in a consultation on the distribution of next year’s local government finance settlement.

The government caused consternation in some quarters last year when it decided to compensate authorities suffering negative revenue support grant (RSG).

But the consultation from the Ministry of Housing, Communities and Local Government, released last week, said ministers are minded to continue the current approach.

It said: “This approach would recognise the need to provide stability to local authorities with negative RSG in 2020-21 and would be consistent with the government’s previous commitment, made during the implementation of the business rate retention scheme in 2013/14, that authorities’ retained business rates baselines, which are used to determine their tariff and top-ups, would be fixed in real terms until the business rates system was reset.”

However, it acknowledged that some authorities had opposed the policy last year.

Compensation policy

The compensation policy is unfair on deprived urban authorities, according to representatives of municipal councils.

Geoff Winterbottom, principal research officer at urban council representative organisation SIGOMA, said that 145 of the 168 authorities who would have been adversely affected by the negative RSG issue in 2019 will be shire district councils.

He said: “These authorities are in a position where they are collecting more than they need to provide their services.”

Elsewhere in the consultation, the government said that it is not proposing to alter the existing mechanism for determining business rates tariff and top-up payments in 2020-21.

The department is also planning to retain the existing £900m top-slice of RSG to fund New Homes Bonus payments during 2020/21.

However, it said that it could adjust the baseline of housing provision above which the grant is paid “to reflect significant additional housing growth and spending limits”.

The government repeated its intention to examine whether NHB is the most effective mechanism for incentivising housing growth in future years.

The consultation covers the one-year spending round unveiled by chancellor Sajid Javid in September.

The government said this week that it estimates that the settlement will mean council’s “core spending power” will rise from £46.2bn this year to £49.1bn, which it says is a 4.3% real-terms increase.

It said it plans to carry out a multi-year spending review next year, which will lay the groundwork for reforms – including a full reset of business rates retention baselines in 2021/22.

The consultation will close at the end of October, with the government aiming to announce the provisional local government finance settlement in December.