I wanted to share what I’ve learned recently about how our Vale council is funded, the insecurities in funding, and how that affects our ability to plan and provide services.

I’ll use approximate but correct figures here. That way it’s easier to follow.

Our annual budget is currently a bit over £15m per year. We earn about £800,000 on our investments each year. So that leaves a little over £14m to be provided by the other sources of income:

• New Homes Bonus: 33% of our income
• Business Rates Retention Scheme: 16% of our income
• Council tax paid by residents: 47% of our income
• (these don’t add to 100% because of rounding)

Our population is about 130,000, so it costs council about £110 per person to provide the services we do today. (130,000 times £110 is £14.3m.)

New Homes Bonus (NHB) has been a Government scheme to reward councils for successful housing growth. Vale has excelled at this and as a result 33% of our income has been from the NHB scheme. But Government is ending this scheme and this is the last year for it. They’ve not yet announced what scheme will replace it. As a result, we are unable to effectively plan for our medium to long term future, which has brought about the current pause in discretionary capital spending.

Business Rates Retention Scheme (BRRS) is a Government scheme to promote business growth in the district. Council retains a portion of the business rates we collect. But there’s a hitch. The percentage we retain depends on income being over a certain threshold, which was set when the scheme started in 2013-14. In our council, immediately after this baseline was set, Didcot power station closed and the Culham Science Centre gained charitable status, so neither of them had to pay business rates any longer. As a result we haven’t exceeded our threshold from the very beginning. So our retention rate is low, and even though the Government has been the same party as the Vale administration, there’s been no success in trying to get a correction for this on our behalf. So we’ve been losing out every year due to an accident of timing that hasn’t been remedied. BRRS is low, then, at 16% of Vale income.

The only income stream under any sort of council control is the council tax that we pay as residents. For the current year, 2018-19, it is £126.69 per year. Councils are allowed to raise it by the greater of £5 or 3% each year. For many years the Tory administration decided not to raise it at all, which has meant that the portion of council income that was under our control wasn’t maximised. That’s set back our financial position by several £m, as a result. (That’s another post for another day.)

Councils across the UK vary in their dependence on Government schemes for their budgets. Where councils have managed their council tax rate so that council tax is set at a level that covers most or all of services, those councils aren’t overly concerned with the whims of central Government and their frequent changes to local authority funding schemes. They are more stable. But Councils where their council tax is set very low, and who rely heavily on Government funding, are having the worst times right now. We reap what we sow, in my opinion. By freezing council tax for many years, Vale is relatively more reliant on Government funding, and that dependence has brought us to where we are today. Financial uncertainty for the medium to long term, and the pausing of discretionary capital spending.

What do you think should happen now?