Agenda item

Dave Shipton (Head of Finance Policy, Planning and Strategy and acting s151 officer) was in attendance for this item.

1.    Mr Shipton (Head of Finance Policy, Planning and Strategy and acting s151 officer) provided an update on the Fair Funding Settlement, and noted that although publication on 17 December was consistent with previous years, the 2026-27 settlement was unusual in its scale and complexity. It included significant reforms to both the data used to determine funding allocations and the methodology applied, and this was the first time local authorities had been able to see the detailed impact of these changes at an individual authority level.

2.    The settlement included the first reset of the retained business rates baseline since 2013–14. As a result, the national local government share of business rates had been redistributed according to the revised formula for relative needs and resources. Authorities whose formula allocation exceeded their local share would receive a top?up, while those whose share exceeded their formula allocation would pay a tariff. For Kent, this meant that all business rates growth accumulated since 2013-14 had been reset to zero and redistributed, with only future growth from 2026-27 onwards being retained locally until the next reset. This reset accounted for around two?thirds of the funding increase received by Kent.

3.    The second major change involved the consolidation of a number of separate grants into the Revenue Support Grant (RSG). Mr Shipton advised that both the RSG and retained business rates were fully discretionary funding sources, making this consolidation particularly significant. Unlike the full and immediate reset of the business rates baseline, the changes to the RSG would be phased in over three years. In the first year, one?third of the RSG allocation would be based on the new formula and two?thirds on the previous distribution. In the second year, this would reverse, with two?thirds based on the new formula. Full implementation would follow in year three. Kent’s gains from this transfer into the RSG would therefore be introduced gradually over the three?year period.

4.    It was noted that the national settlement continued to be presented as “core spending power,” and Kent’s spending power was increasing at a higher rate than the national average owing to the gains from the reforms. Mr Shipton clarified that the council tax figures shown in the spending power calculation were government assumptions and did not predetermine the Council’s own decisions.

5.    Mr Shipton advised that, in addition to the transfer of various funding streams into the Revenue Support Grant, a number of other grants had also been consolidated into four larger funding blocks:

·         the Children, Families and Youth Grant;

·         the Crisis and Resilience Fund;

·         the Public Health Grant; and

·         the Homelessness, Rough Sleeping and Domestic Abuse Grant.

These broader grants replaced several previously separate allocations. Although each remained ring?fenced with overarching conditions, the consolidation meant that the individual requirements attached to the former standalone grants no longer applied. This provided authorities with greater flexibility to prioritise spending within each grant area. The consolidated grants had been announced as part of a three?year settlement, which offered increased certainty over future funding levels. This multi?year approach was the first since 2016 and would significantly support medium?term financial planning by providing a clearer view of projected resources over the coming years.

6.    Further to questions and comments from Members the discussion included the following:

(a)  It was confirmed that all local authorities had received the settlement on 17 December. No authority had been given advance indicative figures, despite consultations having begun in 2017 and the most recent consultation taking place over the summer. A policy statement issued in November had outlined the Government’s response to the consultation, but it had not included authority?level allocations. Officers advised that, prior to 17 December, they had only been able to model potential scenarios to estimate the likely impact.

(b)  In response to questions regarding the impact of the business rates changes on Kent businesses, Mr Shipton explained that the most significant effect would be the re?evaluation of all rateable values. He noted that, whereas re?evaluations had previously taken place every five years, they would now occur every three years, and this represented the principal change for businesses. He confirmed that the wider retention arrangements did not directly affect businesses at this stage. Mr Shipton advised that future growth in the business rates tax base would, however, benefit local government. Under the current system, 50% of business rates growth was retained nationally by government and 50% was retained locally. Of the locally retained share, 18% was received by KCC, 80% by district councils, and 2% by the fire authority. He emphasised that, for individual businesses, the main impact remained the revised rateable values resulting from the re?evaluation.

7.    It was RESOLVED that Cabinet agree to:

(a)  Note the provisional settlement including the reset of business rate baseline and consolidation grants, and impact on draft budget 2026-27 and Medium-Term Financial Plan 2026-29; and

(b)  Confirm the delegation to the s151 Officer to finalise any response, in consultation with the Deputy Leader