On Wednesday 26 November 2008, Local Government Minister John Healey announced the Local Government Finance Settlement for 2009-10.

Key points included in the settlement were on the subjects of:

Funding: Local authorities will receive £73.1 billion in 2009-10 and £76.4 billion in 2010-11 – increases of 4.2 per cent and 4.4 per cent. The 2008-09 figure was £70.4 billion, which equates to a 3.8 per cent rise between 2008-09 and 2009-10. There is no new money to respond to recession-induced cost pressures.

Efficiency improvements: Local government is still expected to make the same 3 per cent annual efficiency improvements as the rest of the public sector. Delivering this would mean councils have an extra £4.9 billion to spend over three years on improving services or cutting council tax pressures – worth almost £90 off the average band D council tax bill each year.

Councils’ October 2008 projections indicate that they will achieve the 3 per cent target in 2008-09, but only because they have been permitted to carry forward around £0.5 billion from last year under DCLG rules. The Minister pointed out that achieving 3 per cent every year will require councils to raise their game.

John Healey also announced that revenue funding for local authority services in 2010-11 will be £76.4 billion (implying that this will be unaffected by the £5 billion reduction in spending announced in the Pre-Budget Report).

Grant floors: To ensure that no council receives less funding than in previous years, the grant floors will be continued. The grant floors will be for:

• authorities with responsibilities for education and social services, 1.75 per cent in 2009-10 and 1.5 per cent in 2010-11
• police authorities, the floors will be 2.5 per cent in both years
• fire and rescue authorities, and for shire district councils, the floors will be 0.5 per cent in both years

Failure of Icelandic banks: Mr Healey announced ‘an exceptional practical measure’ so that authorities affected by the failure of Icelandic banks will not need to make provision in their budgets for 2009-10 for any possible loss on these investments. This will give them time to adjust their medium term financial plans and be clearer about recovering their money before making decisions which affect their budgets or council tax.

Council tax: This year saw the average council tax rise by 3.9 per cent - the lowest increase for 14 years and the second lowest ever. Mr Healey expects this trend to continue with the average council tax rise substantially below 5 per cent. He added that Government will not hesitate to take capping action against excessive increases if that proves necessary.

Supporting People: The programme of funding of £1.66 billion will continue to be paid as a named grant in 2009-10, but will be unringfenced.

The new unitary authorities: The new nine new unitary authorities that will be established next year must deliver affordable council tax and their promised savings once they are up and running of over £100 million a year.

Communities and Local Government has published full details of the Local Government Finance Settlement 2009-10.