Source · Select Committees · Public Accounts Committee
Recommendation 21
21
Accepted
MHCLG and HM Treasury failed to assess NIC changes impact on local government services.
Recommendation
We asked whether an impact assessment had been carried out to consider whether local authorities would be able to fully compensate organisations, particularly smaller charities providing local government services, for the increased NIC costs out of the £515 million.53 MHCLG told us that at every spending review it looks “in the round” at local authority spending and need with the NICs factored into that assessment. It said that through the autumn statement and the local government finance settlement, it had put in an additional £5 billion in grant funding.54 When pressed MHCLG told us this significant uplift in funding, some of which would help compensate for increased costs, was a best estimate and they could not control or comment on the actions of individual councils. However, neither MHCLG nor HM Treasury could point us to any assessment of the impact of the NIC changes on local government services.55
Government Response Summary
The government accepts the implied recommendation to assess the impact of NIC changes on local government services, committing to a post-implementation review by Autumn 2025. They also disagree with the committee's finding that no prior assessment was made.
Government Response
Accepted
HM Government
Accepted
4.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2025 4.2 The government disagrees with the Committee’s conclusion that there was no assessment of increases in NICs on local government. At Autumn Budget 2024, the government set aside funding to support the public sector with the additional cost of employer NICs. The total support funding for the whole of the public sector amounted to £4.7 billion in 2025-26, inclusive of Barnett Consequentials. This funding was based on an estimate of the proportion of employer NICs receipts paid by public sector organisations, using the Office for National Statistics’ classification of the public sector boundary. This approach to estimating the cost of similar measures for public sector organisations is in line with the approach taken under the previous government. The total £4.7 billion support funding was allocated to departments and other public sector employers based on each employer’s total share of headcount, wage and salary costs. 4.3 As part of this approach, HM Treasury assessed sectoral impacts, including potential pressures on local government due to increased costs for adult social care providers, before announcing the changes to employer NICs at Autumn Budget 2024. After Autumn Budget 2024, DHSC assessed and shared with MHCLG the impacts of employer NICs policy changes on the adult social care sector. In addition, MHCLG, working with the Local Government Association (LGA), assessed the level of funding required to compensate local government for the impacts of employer NICs changes on directly employed staff. 4.4 At the provisional Local Government Finance Settlement, £515 million was announced to support local government to manage the impacts the employer NICs changes, alongside a methodology note explaining MHCLG’s intended distribution for employer NICs funding. The Settlement was then consulted on, and allocations were confirmed for the final Settlement, alongside other elements, including confirming £880 million in recognition of adult social care pressures. 4.5 The government agrees with the Committee’s recommendation to carry out a post-implementation review of the increase in NICs on the areas outlined by the committee. The government will continue to monitor pressures on local government, including the impacts of employer NICs changes, through ongoing stakeholder engagement with local government and the care sector.