Local government funding: the borough council's letter to John Denham, Secretary of State for Communities

• Cllr Stephen Knight writes: RICHMOND Council is calling for a change in the way local government is funded following the publication of the latest round of grants in the local government finance settlement.

We are now releasing the letter we have sent to John Denham, Secretary of State for Communities so residents are aware of the message we are sending to government.

Key points:

• If the Council was funded through the formula grant at the outer London average of £403 per head, instead of the £149.68 we will receive, we could cut council tax by 41 %.

• Richmond upon Thames' Council Tax is high because we receive much less money from the government than other boroughs. If we reduced our Council Tax to the London average of £999 without any extra government money, we would have to cut 62 % of Adult Social Services or 91 % of Specialist Children's Services.

• Our argument is that while we don't expect to get the same level of funding as boroughs which have significant extra need, we are currently being treated too unfairly by government, hence the need for change.

Against the small increase in funding, less than any other London borough, we have to fund myriad services, including those where we do not yet know the full cost. This includes the proposed removal of the concessionary fares grant, and the government's announcement of free intensive adult social care.

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• The full text of the letter to John Denham MP, Minister for Local Government, Department for Communities and Local Government:

Dear Minister,

Local Government Finance Settlement 2010-11

I write, once again, on behalf of the residents of the London Borough of Richmond upon Thames in response to the recently announced provisional 2010-11 Local Government Finance Settlement. The proposed settlement confirms, yet again, the unfairness of the formula grant system and its inadequacy in providing for boroughs such as ours, which continually have to rely on the floor mechanism to maintain the minimum level of grant funding available.

On a positive note, we do recognise the benefits of 3 year settlements and "floors and ceilings" in terms of forward planning, although the continuity has to some extent been lost as there is no overlap between the current settlement and the next.

As you are no doubt aware, Richmond upon Thames has a justified reputation for providing excellent value for money being amongst the lowest spenders per head in London whilst providing excellent services. This is evidenced by our repeated achievement of 4 out of 4 for Value for Money under the Comprehensive Performance Assessment. However, despite our low spending per head, our residents are forced to pay one of the highest rates of Council Tax in London partly because the Formula Grant mechanism does not treat the borough fairly. I should make it clear at this point that we do accept that Richmond upon Thames should be receiving a relatively lower level of grant than many other authorities but our argument is that the gap is too great.

To illustrate this point, if we were to reduce our Council Tax to the London average of £999, we would have to reduce our expenditure by £25m. This equates to:

• 62 % of expenditure on the provision of Adult Social Care

• 91 % of expenditure on Specialist Children's Services

• £2.8m more than we currently spend on Waste Management and Enforcement and Highways Management combined

Again, we accept that the public sector needs to achieve efficiencies in the coming years and we continue to have an ambitious programme in place but our argument remains that our starting point in already being a lower spender per head than other London boroughs means we start from a more difficult position than many.

To return to this years settlement, Richmond upon Thames will receive £28.015m in formula grant for 2010-11 of which £18.479m will be granted as a result of the 1.5% floor mechanism. This means that 66% of the borough's grant is attributable to the floor mechanism. If there were no floor mechanism local residents would only receive £50.95 per head of population. It is difficult to accept that the grant mechanism is working correctly or effectively, given this outcome.

Richmond upon Thames will, as usual, be receiving the lowest level of formula grant per head in London at £149.68 per head and the third lowest nationally when compared to similar authorities. This represents a cash increase of only 87p per resident excluding schools. If we were funded at the same level as the next lowest funded London borough, Bromley, we would receive an additional £12.4m in grant funding - equivalent to a reduction in our band D Council Tax of 10.9%.

The average level of formula grant received per head of population in Outer London is £403.71. This means the average Outer London resident receives £254.03 more than Richmond upon Thames residents. If we received the same level of funding as the average it could reduce its Council Tax by 41%.

From the current minimal increase in funding, the borough has to finance the cost of a myriad of budget pressures:

• Richmond upon Thames has experienced a significant increased demand for adult social care provided to older people with 8% more service users overall compared to 2008 and an overall increase of 33% for people requiring intensive levels of care and support over the last 3 years. There are further demand pressures relating to adults with learning disabilities where the number of people requiring care and support is increasing by approximately 5% per annum, mainly due to the large number of young people in transition from children's services, most of whom will require care and support provided by the Council for the whole of their lives. These add up to underlying budget pressures of at least £2m per annum.

• The impact of the recession in terms of losses in key income streams including parking, planning application fees, building control fees and interest on investments has put considerable pressure on our budget this year

• Landfill Tax payments are expected to rise by 20% from £40 per tonnage to £48 per tonnage. This represents an estimated £430k increase in costs. This is a direct additional tax on the residents of the Borough.

• The proposed removal of part of the special Concessionary Fares grant, means we won't know the funding position for this until January at the earliest and may have to deal with in excess of £0.5m loss in this respect.

• The Government announcement of free intensive adult social care does not provide any details of exactly which category of client will be affected and, on it's own calculations expects local authorities to meet half the cost of an, as yet, unknown amount.

• Increasing demand for primary school places continues to outstrip the additional capital funding provided. We have estimated that the total cost of the Primary Capital Expansion Programme necessary to meet demand will be around £90m. To date we have only secured £30m in funding.

We have over many years of representations to Government made various suggestions as to how the system could be made more equitable. In the light of this year's settlement, we would like to reiterate these arguments.

• There should be a reconsideration of the working of the floor mechanism, recognising that the current system does not work properly for "outliers" such as Richmond upon Thames. This could include a safety net mechanism, such as that considered in reviews of the grant system before, to ensure that the lowest funded authorities were at least brought up to a minimum funding level by reference to the average for the class of authority.

• Business Rates should be returned to Local Authority control or the LABGI scheme should be improved to return a higher proportion of increased business rates to Councils. Businesses in Richmond Upon Thames will pay over £73m to the pool in 2009-10 and we will only receive £24.5m back in grant for 2010-11.

• The return of Landfill Tax direct to boroughs for reinvestment in waste and recycling initiatives.

• The direct payment to floor authorities of the revenue grant for supported borrowing. Recognising that at present no floor authority receives any additional funding for supported borrowing. This could be via an adjustment to the floor in respect of increases to supported borrowing in line with the Capital Adjustment previously made under the FSS system.

• The full cost of discretionary fares schemes to be funded equitably across the country.

• Proper recognition of increased costs borne by local authorities as a result of Government imposed changes e.g. the 0.5% increase in National Insurance and proposals around intensive adult care.

I would urge you to give serious considerations to each of these points and, as in previous years, I would be very happy to meet with you to discuss any of the above.

Yours sincerely,

Councillor Stephen Knight

Deputy Leader and Cabinet Member for Resources