Source · Select Committees · Public Accounts Committee
Recommendation 22
22
Accepted
LGA estimates over £1 billion NICs funding shortfall, unassessed by MHCLG.
Recommendation
We drew MHCLG’s attention to the Local Government Association’s calculations on the costs to local government of the increases in NICs. These suggest that the direct cost to local government is an estimated £637 million. The LGA also calculated indirect costs of £1.1 billion to private sector organisations who provide services to local government. When we challenged MHCLG on a potential funding shortfall of more than £1 billion, it again referred to the £5 billion of extra grant funding provided through the local government finance settlement for 2025–26. However, MHCLG had not carried out its own assessment of the LGA’s figures.56 51 LGFS0002 52 LGFS0024 53 Qq 47, 48, 49 54 Q 48 55 Qq 50, 51 56 Qq 75,76, 77; LGA statement on provisional Local Government Finance Settlement, 18 December 2024 17 Managing overspends in local government
Government Response Summary
The government accepts the implied recommendation to assess the impact of NIC changes, committing to a post-implementation review by Autumn 2025 to monitor pressures on local government, while also disagreeing with the committee's finding of no prior assessment of LGA figures.
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.