Dear

A FAIR FINANCIAL SETTLEMENT FOR RURAL COUNCILS FOR 2024/25

I am writing to seek your support for a campaign by rural councils, co-ordinated by the Rural Services Network, (of which XXXXX Council is a member) for a local government finance settlement for 2024/25 (the last before the General Election) which is fair for rural councils.

Overview
Rural residents across England are currently disadvantaged by the way that councils are unfairly funded by Government.

Successive Government underfunding has meant that nationally for the year 2023/2024, urban councils receive some 38% (£135) more per head in Government Funded Spending Power compared to rural councils.  As a result of years of underfunding, council tax has increased in rural areas resulting in the current situation where rural residents will pay 20% (£110) per head more in council tax than urban counterparts. 

• Rural residents will get 13% less per head in social care support overall.
• Rural residents are paying 64.83% of their council’s Core Spending Power through council tax compared to just 52.57% in urban areas. Rural are paying for 12.26% MORE.
• Rural residents, pay more, receive fewer services and wages earnt in rural communities are less than on average earn less than those in urban areas. The cost-of-living is higher in rural areas than elsewhere in the country.

The Needs and Resources/Fair Funding Review [commenced in 2016] will not progress during the current spending review period.

The impact of the current unfair funding regime on XXXXXX Council
COUNCILS TO ADD THEIR OWN LOCAL DATA HERE

The Campaign is calling for:

The existing formula to be applied from 2024/25 in full without damping but with the £248 million pounds increased to reflect inflation.

• If the formula is not applied as set out above, then in 2024/25 the amount necessary to do so should be distributed via the RSDG mechanism and all authorities exemplified as benefiting from the 2013/14 formula changes should receive the exemplified amount as adjusted for inflation.
• The Needs and Resources Review to conclude in the first 12 months of the next Spending Review period (with full implementation in 2026-27). In so doing Rural Services Delivery Grant should remain as a discreet fund to reflect the non-travel costs of rurality in any future funding formula.

Details supporting the case are set out below and I hope that you will actively support this campaign.

1. The construction of the present funding formula

The present formula was created in 2013/14. The Rural Services Network had submitted extensive evidence of the extra costs of providing rural services in the preceding years. The government accepted that evidence and changed the Needs Assessment component of the formula in 2013 /14. That followed a Consultation in 2012/13 on changes to various factors relating to rurality/sparsity costs. The changes were exemplified by the Government as having a value to rural areas of £248M.

The formula was far from perfect but the greater acknowledgement of the extra service delivery costs in a rural context was welcomed.  MPs representing rural constituencies also welcomed the Fair Funding Review announced in 2016 and have had discussions with several secretaries of state for [what is now] DLUHC over the years. They had been assured that further beneficial changes to reflect rurality costs would come forward through the Review.

Density indicators drive an estimated 3.89% of the current “needs” formula - more than three times the amount that is distributed by the sparsity indicators. They are more concentrated in the EPCS formulas, with density accounting for as much as 26.53% of the district level EPCS [and 3.75% of the county level EPCS]. In monetary terms sparsity is probably only worth about a third of that which density is worth in the formula.

2. But the formula is not being applied in full - this to the detriment of rural councils.

The welcoming of the greater acknowledgement in the formula of the extra service delivery costs in a rural context was short-lived.

In practice, when the changes were fed into the formula, damping was applied [1]. This meant that, on average, only some 25% [£61.75M] of the benefit to rural councils fed through into the amount of government grant received. 75% was lost. In effect, Ministers have accepted the case for making changes but have done nothing to make it happen.

To compound that unfairness, the formula was then frozen for a period of 7 years due to the introduction of the Business Rate Retention Scheme. It remains frozen 10 years later [although other funding streams have applied over the years within the overall annual allocations]. That said, whilst not a change the formula as such, the government in 2016 changed the methodology for calculating Revenue Support Grant [which took Council Tax receipts into account] with huge losses to rural areas and huge gains to urban areas.

At a recent meeting with Chris Loder MP, the Secretary of State commented that he did not think it was a good idea to try to change the decisions of 2013/14. Whilst we do not accept that position it is a fact that the formula should have only been frozen until 2021. Therefore, unfreezing it and applying it in full accords with the 2013/14 decisions.

In 2013 MPs representing rural constituencies made strident representations and Rural Services Delivery Grant [RSDG] was subsequently introduced as a form of compensation. Ministers recognised the unfairness of the decision not to implement the new formula in full – but only compensated rural authorities for a fraction of their losses.  The Rural Services Delivery Grant (RSDG) is, even now, only worth £95m.  

It should be noted that under the Government’s formula for distributing RSDG, not all authorities exemplified as benefiting from the formula changes receive RSDG.  XXXXX Council does/does not DELETE AS APPROPRIATE receive RSDG.

Even with the extra £10M added to RSDG in the 2023/24 Final Settlement it is only £95 million. So, in comparison to the £248M exemplified, gains from the formula changes of some £62M fed through into allocations and £95M is in the form of RSDG. This totals £157M - still some £91M short of the £248M. That £248M should be more like £340M to have the same spending power benefit in 2023.

3. Impacts of the points raised in Section 3 above. 

In the absence of a conclusion of the review of the formula (started in 2016), there can be no justification for penalising rural authorities by continuing to deny them their full formula allocations. They have already been denied that benefit for nine years.

• London is getting some £236M a year more in government grant than the formula says it should [of which £166M is received by only five boroughs] - this is at the expense of rural and non – London councils.
• Research, completed by the Rural Services Network, has shown that Urban Councils budget to spend double that of rural councils on discretionary services per head for the year 2023 – 2024. Discretionary services include vital services for rural communities, things like public transport, public toilets, play parks and leisure facilities and economic development, so clearly needed.
• In 2021/22 if rural residents had paid the average urban Band D tax, they would collectively have been better off the tune of £419.3M. Much of that would have been spent locally meaning a loss to the rural economy in general. This impact is greater still when the difference between average London and average rural Band D council tax is applied: it sees the rural council taxpayers collectively suffering to the tune of £1.520bn. THAT IS FOR A SINGLE YEAR - the cumulative impact over a period would have been enormous.
• As an example, an average Band D charge for Herefordshire for 2023/24 is £2,221 but for Southwark is £1693. That is over £528 [31.2%] more a year for rural households to be paying in Herefordshire compared to Southwark households.

The Support Requested of You

Please support this campaign in any way which you can. Write to Ministers, ask to meet Ministers, support backbench debates on the subject, put down questions at PMQ’s or Departmental Questions, press Ministers at the Party Conference if you are attending.
Thank you in advance for your support. If you wish to discuss, please let me know.

XXXXXXXXX

Leader of the Council

[1] Damping is ‘a temporary measure to moderate the effect of changes in individual years.  It is applied to the Local Government Finance Settlement formula to ensure that there are not significant changes in the way that funding is allocated each year to enable local authorities to manage their budgets effectively.