Finance Bill

This parliamentary briefing was published on 22 November 2024.

Background

This briefing has been prepared for Members of Parliament ahead of the Second Reading of the Finance Bill, taking place on 27 November 2024.

Working together to build stronger communities

NALC is committed to working positively and constructively with the new government and Members of Parliament to build stronger, more resilient communities.

Our country faces challenges that national government alone cannot solve. It is local government, at all levels, which provides the key to tackling many of these challenges.

This includes our most local level of government – parish and town councils – who are local leaders with skin in the game, who know their places best and what they need. Local leaders who are taking action on issues such as climate change, the cost of living, health and well-being, high streets and town centres, community safety, and services for younger and older people – some of the most profound issues we face, which hyperlocal parish and town councils are stepping up to address. 

We outline two issues from the Budget of pressing importance to our members.

National insurance contribution increase

In the 2024 Autumn Budget, the Chancellor of the Exchequer announced an increase to the rate of employer national insurance contributions (NICs), from 13.8% to 15%. Alongside this, a reduction in the per-employee threshold at which employers become liable to pay national insurance (the secondary threshold) from £9,100 to £5,000, commencing 6 April 2025, was announced.

The OBR’s Economic and Fiscal Outlook, published alongside the Budget, stated that public sector bodies including the NHS would be compensated for employer NICs increased via RDEL budgets.

However, following conversation with the Ministry for Housing, Communities and Local Government (MHCLG), NALC has been informed that parish and town councils will not be compensated alongside other public sector bodies.

We calculate that these changes will cost English parish and town councils approximately £10 million each year. As a result, council taxes would require a 1.5% to 3% increase to cover the additional cost.

At present, the stated cost of compensating public bodies included within the government’s scope is calculated at almost £25 billion over the next five years. As stated above, the cost of compensating parish and town councils over the next five years would cost around £50 million.

Policy ask:

Many parish and town councils are already well into their budget-setting process for the next financial year. At a time of considerable financial strain, this additional cost would make the process even more challenging and risk tax rises for local residents.

In addition to the fiscal context, this is a question of basic fairness. Parish and town councils are public sector bodies. The Government has outlined a public sector compensation scheme for NICs increases. Parish and town councils are not currently included within that scheme.

In addition, the government’s Net Burden Doctrine states that: "the net additional cost of all New Burdens placed on local authorities (including parishes, police and fire and rescue authorities) by central government must be assessed and fully and properly funded".

As such, it is vital that parish and town councils are fairly compensated for the NICs increase, alongside other public sector bodies.

Key questions:

• Does MHCLG intend to compensate local government for the employer NICs increase?
• Will this extend to parish and town councils? If not, why not? If so, what mechanism will be used to compensate parish and town councils?
• Has the government conducted any analysis regarding the need for potential council tax increases if local authorities are not compensated?
• Is the New Burdens Doctrine still in force? If not, when was it removed, and why?

Devolution and growth

We welcome the government’s vision for greater devolution across the country and look forward to engaging with the forthcoming White Paper. Devolving more public expenditure decisions to local areas will help to ensure maximum value for taxpayer money and boost local support for a range of projects and initiatives.

Parish and town councils must form a key part of the conversation on devolution. We stand ready to work constructively with the government to ensure that devolution is a success and extends to all tiers of local government.

However, deepening devolution settlements for existing combined authorities and widening devolution to more areas must go further and be accompanied by more localism and devolution of powers and funding for all local government, in both rural and urban areas, including hyperlocal parish and town councils.

Policy asks:

• Devolution and value for money — We urge the government to recognise the crucial role our  members can play in ensuring in ensuring that taxpayer funding for essential services – such as social care, tackling homelessness, and addressing anti-social behaviour – is spent effectively.
• Local government — We urge the government to refrain from setting referendum principles for increases in council tax by parish and town councils in the forthcoming Provisional Local Government Finance Settlement.
• Housing and planning — Parish and town councils can form an important part of the planning process to secure local consent and get Britain building again.
• Rural economy — A report published by the Rural Coalition (Reigniting Rural Future report) reveals the enormous potential of the rural economy, which could generate around £19 billion annually in additional tax revenues.4 We would urge the Government to recognise the critical role rural areas can play in boosting economic growth.

Key questions:

• Does the government recognise the important role played by parish and town councils in ensuring that taxpayers’ money is spent effectively?
• Does the government acknowledge the vital role parish and town councils can play in securing local consent to get Britain building again?
• Will the government continue to provide grant funding for parish and town councils to support their neighbourhood plans?
• Does the government acknowledge the significant potential of the rural economy in boosting national economic growth?