Changes in how funding is distributed between councils appear set to result in the erosion of local government services across vast swathes of England.

The Government today announced a shake-up in the funding model for councils. The main formula for local government grant funding will have a stronger link to population and levels of deprivation. This will redistribute funding away from small towns and rural areas towards bigger cities. District council services – including housing, homelessness, leisure centres, environmental services and planning – are set to lose out.

Preventative services, which can save vast sums across other public services, are likely to be hit hard because councils are not statutorily required to provide them. Many councils are likely to find they have little option but to cut back on services that prevent homelessness and keep people physically and mentally healthy so they don’t need acute NHS services or formal social care.

Meanwhile, the Government announced it is removing a major incentive for councils to build new housing. The New Homes Bonus is being removed despite the Government’s aim of building 1.5 million new homes during this Parliament.

The Government has also confirmed it will fully reset the baseline for retained business rates. This will penalise areas which have seen an upsurge in business rates receipts in recent years due to their pro-growth attitude which has boosted their local economy. This will hit many district councils particularly hard, taking up to 20% out of their spending power before transitional funding protection.

The Government maintains that local government as a whole will receive a real-terms increase in spending power for each of the next three years. The consultation does not provide details of funding allocations for individual councils. But DCN believes that many district councils will not get a real-terms increase. This is due to a combination of the funding formula changes, business rates reset and the fact that districts do not raise the extra social care precept for council tax.

Technical changes to the funding formula for flood defences and coastal protection appear likely to create additional pressure for many district and unitary councils already struggling to absorb the impact of more extreme weather and environmental change.

In response, Cllr Jeremy Newmark, DCN Finance spokesperson, said:

“The funding reforms unfairly penalise the users of district council services, which offer a lifeline to many people and enrich the lives of many more. Services including housing, parks, leisure and wellbeing, street cleaning and town centre regeneration will inevitably be impacted by the triple whammy of scrapping the New Homes Bonus, resetting business rates and the new funding formula.

“These changes redistribute money away from the vital preventative services that districts provide. These include leisure centres, which keep people healthy and out of hospital; home adaptations for older people and people with disabilities, which reduce demand for social care; and early intervention to support people at risk of homelessness.

“The old system was unfair and did not work properly for most councils.  The principle of targeting deprivation is welcome. However, these proposals will have problematic knock-on effects.

“In the Spending Review, the Government rightly emphasised the importance of long-term investment. So it’s disappointing that this principle has not been applied to local government funding. District council services have been proven to reduce costs for the NHS, adult social care and the wider public purse.”

On scrapping the New Homes Bonus, Cllr Newmark added:

“District councils have seen the biggest increase in housing targets in the country, with 82% of additional homes earmarked for our areas. We want to build more homes and play our part in the national growth mission. Scrapping the New Homes Bonus will make our job harder.

“The challenge of building our share of 1.5 million homes this parliament was big enough already. We need our work to be properly funded if we are to deliver thriving communities which offer jobs, opportunity and all the public services new residents rightly expect.”

On local government reorganisation, Cllr Newmark added:

“It is disappointing that the Government continues to assert that local government reorganisation (LGR) will deliver substantial savings. The evidence from previous rounds of reorganisation is far from conclusive that real savings will be delivered. What isn’t in doubt is that reorganisation brings with it significant short-term costs and service disruption.

“New unitary councils have requested exceptional financial support of £146m from the Government over the past two years. LGR is not a panacea for the serious financial challenges facing local government and threatens to worsen the situation in the short term.

“LGR can bring long-term economic benefits if done in the right way. We strongly believe this means creating smaller unitary councils with a close connection to local places and communities. This is the best way to drive local growth and prevention.”

Notes to editors

On prevention statistics

• DCN research ‘Fit for the Future: The Health Value of Wellbeing and Leisure Services, shows that investment in physical activity and leisure centres focused on just 1 million of the inactive population would save up to £314 million for the cost of treatment of 45,000 diseases that would be avoided over a 10-year period.

• A district council service expediting discharges in just two Norfolk hospitals is estimated to have saved 12,790 bed days, at a value of more than £8.5 million last year.

• In a recent DCN survey, over half of councils responding said that leisure services were at risk of cuts.

On housing targets

• Under the new method for calculating housing need, 38% of the new 371,000 annual national housing target would be delivered in district areas.

• Of the 66k per year additional homes in the 371,000 target, 82% are in district areas.