Agenda item

(1)       There had been significant changes to the funding arrangements for local government which impacted on both the day to day revenue budget and the capital programme.  The report examined the changes and in particular identified opportunities for funding infrastructure developments and improvements.  The changes must be considered in the overall fiscal context of a shrinking public sector as the Government sought to eliminate the budget deficit and reduce the size of the public sector within the overall economy by reducing public spending as a proportion of the Gross Domestic Product (GDP). 

(2)       The shift in emphasis from revenue to capital spending was extended in the Chancellor’s Budget Statement on 20 March when he indicated that spending reductions would need to continue into 2017/18 to meet revised deficit reduction targets, and there would be a further switch of £15bn of spending from revenue to capital over the five year period from 2015.  As yet there was no further detail on departmental allocations of the additional capital but it was indicative of the Government’s shifting emphasis towards more capital infrastructure spending.

(3)       New arrangements for the treatment of business rates were introduced in 2013/14.  Previously all of the business rates collected by local authorities were pooled and redistributed by Formula Grant (which also included a small top-up from Revenue Support Grant -RSG).  Under the new arrangements 50% were pooled (and redistributed as new RSG) and the remaining 50% retained locally.  The report set out a number of features and consequences of the new arrangements which were important to bear in mind in considering infrastructure funding streams.

(4)       Overall the new arrangements meant the County Council stood to gain very little from infrastructure developments which resulted in additional business rates, but could lose substantial sums from business rate reductions.  The scope to increase Council Tax also looked likely to be constrained by tight referendum requirements (although the County Council would still benefit from the lion’s share of any additional Council Tax from new housing developments). 

(5)       New Homes Bonus (NHB) grant would continue to be allocated as a separate funding stream based on new housing developments and bringing empty properties back into use.  The grant was not ring-fenced i.e. it could be used for any purpose.  New developments would attract funding for 6 years which meant the grant increasing in instalments between 2011/12 to 2016/17 could be anticipated, but thereafter increases would be determined on new developments being larger than the developments dropping out.  However, after the initial injection of £250m in SR2010 the roll out was funded from top-slicing the RSG settlement.  80% of NHB was paid to district councils.  The remaining 20% was paid to the County Council.  Each year to date the county’s share of NHB had amounted to an additional £1.4m to £1.5m and had been used to support the overall budget rather than a particular purpose.

(6)       The Community Infrastructure Levy (CIL) had been introduced as an alternative way for new developments to contribute towards the cost of public infrastructure.  CIL was designed to work alongside and improve upon existing arrangements to levy developer contributions under section 106 of the Town and Country Planning Act 1990.  S106 contributions and CIL could not be raised to fund the same infrastructure requirements.  The charging schedule should set out the types of infrastructure that wouldl be supported by CIL, S106 contributions could only be sought for specific sites which would trigger additional infrastructure needs over and above those set out in the CIL charging schedule. 

(7)       The County Council was working closely with district councils to ensure that the County Council’s infrastructure requirements were included within the district councils CIL charging schedules, and contributions were passed across in a timely manner.

(8)       Legislation was expected to be passed which would enable local authorities in England to be able to use Tax Increment Financing (TIF) as a future source of funding infrastructure development.  Currently TIF could only be used by Scottish authorities.  The localisation of business rates should make TIF viable.  TIF enabled the local authority to borrow against the additional business rate yield which would be generated from infrastructure schemes.  Currently local authorities were limited to borrowing within their existing overall revenue streams and had to make a prudent assessment of the minimum revenue provision (MRP) to offset against borrowing.  Under TIF local authorities would be able to borrow against tax growth.  

(9)               The new local authority arrangements included a number of opportunities for funding major infrastructure developments.  The new funding streams included:-

·        Additional government grants out of the £15bn switch from revenue to capital announced in the March 2012 budget

·        Scope to use New Homes Bonus from specific developments to support infrastructure development

·        Scope to negotiate CIL with district councils

·        Scope to use TIF powers

(10)     RESOLVED that the report be noted.