By Daniel Hunter

Local Government Minister Brandon Lewis has confirmed that this year’s innovative local government settlement is built on the principle of fairness, which means councils that deliver for their communities will make more.

Last year English councils budgeted to spend £114.5 billion, accounting for a quarter of all public spending, which means they have a role to play reducing the inherited deficit.

The final settlement represents a dramatic shift in spending power from Whitehall to the town hall. An estimated 70% of council income will now be raised locally, compared with 56% under the previous centrally distributed formula grant system.

The settlement is a fair one — fair to north and south, fair to rural and urban areas and fair to shires and metropolitan areas. It establishes the starting point for all local authorities in the new business rate retention scheme and sets their individual funding deals.

Councils will now retain nearly £11 billion of business rates instead of returning it to government. This new incentive lets local authorities grow their income by supporting new firms and jobs, which could deliver an extra £10 billion to the wider economy by 2020.

All councils have considerable spending power worth on average £2,216 per household. The overall reduction in spending power, taking into account the new Public Health Grant is just 1.3%. In 2012 it was 3.3%.

More weighting has been given to areas with the highest levels of assessed need. For example, Newcastle has a spending power per dwelling of £2,516 or £700 more than Wokingham, which has £1,815.

Ministers acknowledge that local government has shown great skill in reducing its budgets. Committed local authorities have protected frontline services. The 50 ways to save report sets out more practical ways for councils big and small to save money and gives councils best-practice ideas.

Local democracy has also been strengthened with the confirmation of the 2% referendum principle that will protect residents by ensuring that a local authority has to go to the polls if they want to raise Council Tax and ignore the offer of a government grant to freeze it.

The government has set aside £450 million for local government in England to freeze Council Tax in 2013 to 2014, which will be the third successive year in which a freeze scheme applies. So far 115 councils have pledged to freeze.

“Councils account for a quarter of all public spending. This year English councils will spend £114.5 billion, that’s a bigger budget than the NHS, twice the entire defence budget and more than double the national debt interest, so it is vital they continue to play their part tackling the inherited budget deficit by making sensible savings in 2013," Brandon Lewis said.

“In the past month we have met and listened to councils across the board and we recognise they have made great efforts to reduce their budgets. This final settlement is a fair one - fair for the north and the south, fair for rural and urban, fair for city and shire. It delivers an average spending power per household of £2,216 that can be increased further by turning the business rate retention incentive to your advantage.

“I encourage all authorities and Police and Crime Commissioners to take up the grant offer and freeze their element of the Council Tax. Those that do will be providing real help to families and those on fixed incomes, such as pensioners, with their cost of living.”

A number of changes have been made following representations. Ministers concluded that more needs to be done to support rural areas. On top of confirming the increases already proposed to the sparsity weighting and top-ups, ministers have today announced £8.5 million of additional funding in 2013 to 2014 as a separate new transitional grant to help authorities secure efficiencies in services for sparsely populated areas.

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