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1. Introduction
This paper provides information to the Equality, Local Government and Communities Committee on the Local Government (LG) Main Expenditure Group (MEG) budget proposals outlined in the Draft Budget 2017-18 which was laid on 18 October. It also provides an update on specific areas of interest to the Committee.
Annex A provides a breakdown of the Draft Budget figures for the LG MEG by Action and by Budget Expenditure Line (BEL).
2. Background
The Draft Budget 2017-18 provides a one-year plan for revenue investment and a four-year plan for capital investment, providing certainty for longer-term investments. Table 1 provides an overview of the planned LG MEG.
Table 1: Overview of Local Government MEG for 2017-18
|
Local Government Summary |
First Supplementary Budget 2016-17 baseline |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
|
Resource DEL |
3,333,635 |
3,262,256 |
|
|
|
|
Capital DEL |
20,281 |
143,118 |
143,118 |
143,118 |
143,118 |
|
Total DEL |
3,353,916 |
3,405,374 |
143,118 |
143,118 |
143,118 |
|
|
|
|
|
|
|
|
Total Annually Managed Expenditure |
977,000 |
1,059,000 |
0 |
0 |
0 |
|
|
|
|
|
|
|
|
Total - Local Government |
4,330,916 |
4,464,374 |
143,118 |
143,118 |
143,118 |
The Local Government MEG revenue provision comprises Resource DEL and Resource AME. Together, these total £4.321bn in 2017-18, an increase of £10.6m compared to 2016-17.
There is a net increase of £122.8m to the capital budget. This reflects a number of transfers of General Capital Funding which have previously been shown in other MEGs. They have been consolidated into the LG MEG to improve transparency.
The largest component of the Local Government MEG is the provision for the core unhypothecated funding of the 22 county and county borough councils. This is considered in terms of Aggregate External Finance (AEF) which is made up of revenue support grant (RSG) and redistributed non-domestic rates (NDR). Revenue support grant is included within the Resource DEL and non-domestic rates form the Resource AME.
Within the overall Resource DEL, the Revenue Support Grant 2016-17 baseline has been adjusted for the £2.5m provided on a one-off basis in 2016-17 to limit the reductions in RSG for certain authorities.
The 2017-18 figures include a number of transfers of grants into the settlement and a transfer out of funding to support a change in the arrangements for delivering the teachers’ registration subsidy.
Taking RSG and NDR together, the combined funding available to local authorities through the Local Government Settlement will provide a cash increase of £3.8m (Table 2). Similar arrangements apply to the provision of Welsh Government funding to Police and Crime Commissioners in Wales through the Police Settlement.
Table 2: Aggregate External Finance for Unitary Authorities and Policing
|
|
|
|
£000s |
|
|
2016-17 (adjusted) |
2017-18 Provisional |
Difference |
|
Unitary Authorities |
|
|
|
|
RSG |
3,175,482 |
3,101,370 |
|
|
NDR |
928,150 |
1,006,050 |
|
|
Total |
4,103,632 |
4,107,420 |
3,788 |
|
|
|
|
|
|
Police |
|
|
|
|
RSG |
87,950 |
85,750 |
|
|
NDR |
48,850 |
52,950 |
|
|
Total |
136,800 |
138,700 |
1,900 |
3. Budget Overview
This is a Budget which has been developed against the backdrop of uncertain and difficult times. The outcome of the EU referendum will recast our relationship with the European Union in the long term; and there is uncertainty about the future of important European funding streams and the impact on UK public finances and the Welsh budget.
We continue to face ongoing cuts to our overall funding from the UK Government – the influential Institute for Fiscal Studies has commented that “Wales is looking at an extraordinary 11 or more years of retrenchment in public service spending…”
This means that, as a Welsh Government and as a National Assembly for Wales, we face some hard choices as we continue to work to protect our public services from the worst of these effects and invest in Wales to grow jobs and our economy, taking our country forward.
The UK Government will publish an Autumn Statement in November. Even though early statements by the Chancellor of the Exchequer indicate that the Treasury will no longer be aiming to achieve a surplus by 2020, he has also said it is not an end to austerity. This is why , in our Draft Budget. we have decided to publish revenue spending plans for 2017-18 only and capital plans for four years, providing certainty for longer-term investments.
We are now in the second year of the UK Government’s Spending Review settlement, which set the Welsh Government’s revenue budget for the period 2016-17 to 2019-20 and the capital budget until 2020-21. Overall, the Welsh budget will continue to reduce in real terms over the period.
The cuts yet to come compound the successive real terms reductions which have been made since 2010-11. The Spending Review reductions to our settlement reinforced the UK Government’s squeeze on public spending and commitment to austerity. Our budget will be 9% lower in real terms by the end of the decade – this is equivalent to almost £1.5bn less in real terms for public services in Wales in 2019-20 than in 2010-11.
The Devolved Administrations have urged the UK Government to rethink its economic and fiscal policy. Working together, we are determined to act to ward off further austerity policies which may be considered as a consequence of the referendum result.
The result of the EU referendum has added to the level of uncertainty about future resources for Wales. Withdrawal from the EU will have an impact on the availability of resources available to Wales as it benefits from £650m a year from various European funding streams.
We need revenue plans now which support our public services today and our priorities longer term as well as enabling us to prepare for the inevitable budget reductions over the next few years if austerity continues unabated.
Once we have assessed the impact of the Autumn Statement, we intend to publish planning assumptions for 2018-19 and 2019-20 in the New Year. Our decision to publish a one-year revenue budget means we are providing stability for core services and investing in priorities in the immediate term. This provides a stable platform from which we can manage the tough financial times ahead in innovative ways with our partners and stakeholders.
An integrated, long-term approach to capital funding
In this budget, we have the opportunity to drive investment in the economy, make improvements in vital public services and start to deliver the key priorities set out in Taking Wales Forward.
In previous years, we have mainly had traditional capital and financial transaction funding at our disposal to fund public infrastructure projects – now new borrowing powers and more innovative finance models are open to Wales as the level of available public capital continues to decline.
We will set a four-year capital budget, matching the capital settlement set out in the 2015 UK Spending Review, and consists of a firm budget for 2017-18 and indicative allocations for the subsequent three years. It is important we provide as much transparency and certainty to our key stakeholders and delivery partners as we can to deliver capital investments and so we have concluded that a long-term capital approach is the right decision.
Total available capital funding
The budget sets out plans for £6.9bn of capital funding, which is enhanced by our plans for £1.5bn of investment through our innovative finance investment programmes. We will make full use of the capital borrowing powers provided by the Wales Act 2014. This source of funding, included within our overall capital allocation , gives a £395m boost to our four-year Capital DEL budgets.
Given the many factors that affect the timing and costs of strategic infrastructure projects, access to borrowed funds will be carefully considered during each budget period and used for agreed strategic investment priorities. Our strategic infrastructure plans and decisions are shaped by the commitments in Taking Wales Forward and the investment priorities in the Wales Infrastructure Investment Plan.
Welsh Government central reserves
Our approach is to maximise allocations to portfolios while retaining a prudent level of central reserves as a contingency for unforeseen pressures. Whilst this principle applies equally to our revenue and capital budgets, we are increasing capital reserves further, ensuring that sufficient central funds are available to support our priority commitments as they progress over the Assembly term.
Therefore, our resource reserves for 2017-18 are 1.7 per cent of the Resource DEL and Capital Reserves are 7.1 per cent of the Capital DEL, rising to between 30 and 34 per cent in subsequent three years. We are satisfied that these levels of reserves will enable us to manage risks and respond to unforeseen pressures, while giving individual Cabinet Secretaries funding certainty to begin planning and delivering the key commitments set out in Taking Wales Forward.
4. Programme for Government
This is a Budget to take Wales forward, to provide stability for our core services and to make progress in implementing our ambitious Programme for Government Taking Wales Forward 2016-21:
http://gov.wales/docs/strategies/160920-taking-wales-forward-en.pdf .
Taking Wales Forward sets out how this government will deliver more and better jobs through a stronger, fairer economy; improve and reform public services; and build a united, connected and sustainable Wales through the development and implementation of four cross-cutting strategies:
· Prosperous and secure
· Healthy and active
· Ambitious and learning
· United and connected
These strategies will support Taking Wales Forward and enable us to use all the levers available to us to have the greatest impact and deliver the promise of the Future Generations Act. These interlinked strategies will ensure that public services are integrated, efficient and available to support and enrich people’s lives when and where they need them.
We are committed to providing an environment that encourages innovative delivery in the current environment. Collaboration, partnership and efficiency across the public services are vitally important, as are challenging ourselves and our partners to use our collective resources to maximise the benefits of our collective endeavours. The Future Generations Act gives us, and other public bodies, a strong foundation to build on.
We are also committed to creating the right conditions for businesses to thrive and create sustainable growth and employment opportunities. We will provide a tax cut for small business of £100m in 2017-18 by extending the Small Business Rates Relief (SBBR) scheme, which would otherwise have lapsed. From 2018 onwards, we will put in place a new, reformed, permanent scheme.
SBRR provides 100% relief to businesses with a rateable value of up to £6,000 and tapered relief from 100% to zero to those with a rateable value between £6,001 and £12,000. In addition to SBRR, we will ring-fence £10m in reserves to support a new transitional relief scheme for small businesses.
5. Questions raised by the Committee
Local Government
Local Government expenditure is key to supporting education, social care, housing and a range of other services which are designed to give people the best opportunity for healthy, prosperous lives.
The funding provided through the
revenue support grant, combined with redistributed
non‑domestic rates income, constitutes the Welsh
Government’s core funding support for local
government.
For 2017-18, these two elements deliver the first cash increase in the settlement since 2013-14 and will ensure local authorities are able to maintain delivery of key local services.
This is a better settlement than local government was anticipating and builds on previous year’s settlements where we also protected the allocations. Also, we have built into the settlement a floor arrangement to ensure no individual authority faces an unmanageable reduction in its overall settlement compared with the previous year.
The Local Government Settlement
for 2017-18 includes an additional £25 million for social
care. It also takes account of Welsh
Government’s agreement with Plaid Cymru to provide local
government with an additional £25 million through the
settlement, as well as £1 million for school transport and
£3 million for a pilot scheme to support town centre car
parking.
Dialogue with local government
There has been an ongoing dialogue with local government about the factors that affect the 2017-18 settlement. There have been formal meetings under the partnership arrangements, including three meetings of the Finance Sub Group and meetings of its subgroup, the Distribution Sub Group, which considers matters relating to the distribution formula. The Finance Sub Group meetings have been chaired by the Cabinet Secretary for Finance and Local Government and his predecessor the Minister for Public Services.
The funding formula
The settlement formula, which is developed and agreed with local government, ensures that the funding available for local government takes account of a range of factors including sparsity and relative deprivation across local authorities in Wales. The formula distributes the available funding on the basis or relative need using a wealth of information about the demographic, socio-economic, physical and environmental characteristics of every authority in Wales.
The funding formula is kept under constant review to ensure it remains up to date and relevant. The 2016 Distribution Sub Group Report sets out the proposed changes to the formula and data sources for 2017-18. At its meeting on 4 October, the Finance Sub Group agreed to all the proposed changes outlined in the Report being implemented subject to the phasing in over two years of the change to the personal social services formula. The minutes of the meeting and the DSG Report will be published on the Welsh Government’s website.
It was also agreed that Finance Sub Group would give more detailed consideration to the DSG work programme for 2017 to ensure that the plans for the development of the formula and the potential implications of changes were fully understood.
Preventative Spending
The local government settlement is not hypothecated. It is for each local authority to determine how it spends these resources, along with locally raised council tax and income from fees and charges, to deliver key outcomes and priorities. The core settlement provides the largest single component of the funding local government receives to fund the range of services for which it is responsible.
The commitment to provide the majority of funding through the unhypothecated settlement and continuing to roll grants into the settlement or amalgamate grants together provides authorities with greater flexibility to manage resources in a way that supports the preventative agenda.
Each local authority is an autonomous, democratically elected body which is accountable to its electorate for the decisions it makes. Authorities have a series of statutory duties and functions, and powers to provide a range of other functions and services. Each authority must ensure that it undertakes appropriate impact assessments of any policies it implements funded through the local government settlement. Conducting full and meaningful engagement on its budget will help to ensure impacts are fully considered. It is for local authorities to set their own spending priorities taking account of this alongside the other sources of funding available to them. Local authorities are required to prepare medium-term financial strategies to ensure they are setting budgets which are stable and sustainable for the medium term. The pressures on budgets mean it is important that authorities engage local people in decisions about how local resources are prioritised and spent. In particular, authorities need to engage residents in difficult decisions about where any cuts might be made. Each authority will make its decisions based on local need and priorities and must assess the impact of its proposals and decisions on protected groups and in relation to its wider functions.
Local Government Reform
The budget includes £5 million for transformation and legislation. This is an increase of £2.7m compared to 2016-17. As the local government reform agenda gathers pace, there will be a need to provide pump priming funding to support this.
This, combined with the fact that the local government settlement is better than local authorities were anticipating, will provide authorities with capacity to invest in transformative activities such as developing shared services required to deliver the reforms.
Council Tax Reduction Scheme
The Welsh Government has announced that the existing arrangements for the Council Tax Reduction Scheme will continue for 2017-18 and that the funding within the settlement for it will be maintained at £244 million. This will ensure that approximately 300,000 households in Wales will continue to receive support in meeting their council tax liability. Of these, around 220,000 will continue to pay no council tax at all.
Budget Advisory Group on Equality (BAGE)
In line with our commitment to continuously improve the impact assessment of the Welsh Government’s Budget, the BAGE has over successive years played a vital role in providing advice and best practice on equality issues and helping to improve the evidence base so that the nature of the underlying equality issues can be identified and understood. This work has influenced and shaped our budget considerations in previous years and has provided an important platform for this year’s budget preparations.
This year’s Budget has been shaped by the continuing financial and economic uncertainty. Our priority has been to provide a period of stability for our core public services over the next 18 months, in order that we can all prepare for the tougher financial times that are ahead. Taking Wales Forward 2016-2021 signals a fresh start to delivery, which acknowledges that how we deliver is just as important as what we deliver.
This will require us all to work and think differently, and we are fortunate in Wales that we have legislation (the Future Generations Act) to help drive this change. We remain committed to involving people in the decisions that affect them and as we develop our approach to the Act we will continually need to reflect on the ways in which we engage people and partners, particularly on achieving a more equal Wales.
Central to this is drawing on expertise and evidence to consider the impact of our spending decisions. I shall be looking at how best to engage with stakeholders on equality considerations as part of setting future budgets.
In setting our plans for 2017-18 we are looking at how we engage with stakeholders in order to inform future development of our policies. For example, we are developing our childcare offer through involving parents over the next couple of years so that we find the most effective model for the delivery of quality childcare.
Equality Impact Assessment (EIA)
This draft Budget is a balanced and realistic response to these uncertain times. In light of these circumstances we have aligned our resources to deliver on our priorities and invest in our future prosperity.
We have again taken an integrated approach to our impact assessment, focusing on making informed strategic decisions based on our analysis of supporting evidence about protected groups. We have used evidence of protected groups to help us focus our resources through seeking the greatest positive impact and mitigate the effects of austerity where its impact is unavoidable. This has again enabled us to give full consideration to socio-economic disadvantage, children’s rights, Welsh language and sustainable development, in addition to the focus on equality and tackling poverty.
However, while this Strategic Integrated Impact Assessment focuses on high level strategic impacts of spending decisions, impact assessments are undertaken throughout the budget planning process across portfolios. An assessment of these impacts is provided in the Ministerial evidence provided to subject committees.
Integrated Approach
Building on the initial work to prepare for the Act in the draft Budget 2015-16 we are continuing to develop our approach to embed the five ways of working in how we prepare the draft budget with the Future Generations Act shaping the overall approach.
The draft budget plans were based on a clear analysis of long-term factors that are shaping the demand for public services. The analysis made clear the need for the preventative approach to funding public service provision. In setting a budget for the whole of the public sector I have been clear that better integration across public services will be central to more effective service provision, as will collaboration and the involvement of public service users. We have also continued to take an integrated approach to considering impacts on protected groups and support a focus on our shared national goals.
An integrated approach to assessing impact is critical, not least because many of the issues around equality, poverty and children’s rights are inter-related. Taking this approach helps us to better consider all the potential impacts of our decisions and be confident we can manage them when taken as a whole.
We have already highlighted that we face significant and real delivery challenges and where we are not able to maintain funding we need to ensure any impacts are not disproportionate toward protected groups.
Our integrated approach provides a more realistic assessment of the overall impact of spending decisions and recognises that there is not always a single answer that will manage the impact of a decision in all areas. This assessment of the impacts of our decisions is vital to ensure the promotion of equality of opportunity and the prevention of discrimination, and this has shaped our approach to the budget process.
For example, we have used an integrated cross-portfolio approach to allocating our capital budget and considering the expected impact to prioritise budget allocation. Working across Government we review the government-wide challenges and constraints, to scrutinise proposals, challenge assumptions and identify opportunities for joining-up, for example, availability of land for house-building and the affordable homes programme.
Evidence base
We have published as part of the budget narrative evidence of impacts on protected groups which was informed budget considerations. However when making decisions we bring to bear all available evidence to inform our spending decisions.
We have reviewed information on current and future trends, evidence on protected groups and considered potential impacts on protected groups in order to help inform our choices about best value decisions.
For example we use a range of different sources of information which we use to help inform our budget considerations such as the Equality and Human Rights Commission report ‘Is Wales Fairer?’.
6. Legislation
The budget continues to take account of our current legislative programme. A table setting out the costs for 2017-18, of both previously enacted legislation and anticipated costs of Bills at published RIA stage or enactment, has been published alongside the Draft Budget narrative. As mentioned in section 6, provision of £5m has been made for activities associated with the transformation of local government and the implementation of legislation to support the reform and renewal of local authorities
.