The Treasury manages public spending within two ‘control totals’ of about equal size:
- departmental expenditure limits (DELs) – mostly covering spending on public services, grants and administration (collectively termed ‘resource’ spending) and investment (‘capital’ spending). These are items that can be planned over extended periods.
- annually managed expenditure (AME) – categories of spending less amenable to multi-year planning, such as social security spending and debt interest.
Within resource DELs (RDEL) are grants that finance local authority spending, in particular the Revenue Support Grant from the Ministry for Housing, Communities and Local Government (MHCLG) and the Dedicated Schools Grant from the Department for Education (DFE). This spending is factored into our DELs forecasts. Local authorities are also able to finance spending through local sources – notably council tax and business rates. This spending is accounted for in our AME forecast. We call it ‘local authority self-financed expenditure’ or ‘LASFE’. Council tax is the largest element of this, making up 65 per cent of current LASFE and around a quarter of total local authority current spending, including that financed by grants, in 2019-20. Given the way we forecast it, council tax is broadly neutral for borrowing as it is offset in our spending forecast. (There is a difference between the two – less than £1.0 billion a year – due to local authority spending financed by council tax receipts being recorded on a cash basis and receipts being recorded on an accrued basis in the National Accounts.)
In our latest forecast, we expect council tax receipts in 2019-20 to total £36.3 billion (on an accrued basis). That would represent 4.5 per cent of total receipts and is equivalent to £1,300 per household or 1.7 per cent of national income. Cash spending financed by council tax receipts is expected to be £35.5 billion. That would represent 4.2 per cent of total public spending and is also equivalent to £1,200 per household or 1.6 per cent of national income. Further detail on all aspects of our local authority spending forecast are available in supplementary tables published alongside each Economic and fiscal outlook on our website.