Councils' spending power cut by 1.7% next year Eric Pickles, the local government secretary, said the settlement was a 'watershed moment'. Photograph: Steve Parsons/PA Wire/Press Association Images Councils in England will have their spending power cut by 1.7% next year, the local government secretary, Eric Pickles, has announced. He told MPs the settlement represented a "bargain" for local authorities, adding that the government would offer support for the third year so that council taxes could be frozen. Pickles described the funding arrangements, which will take effect from next April, as a "watershed moment," with power shifted from Whitehall to town halls. "This settlement recognises the responsibility of local government to fund sensible savings and make better use of resources," he said. The minister told the Commons a small number of local authorities would require larger savings to be made, but he said no council would face a loss of more than 8.8% of its total spending power thanks to a new efficiency support grant. As the name implies, to qualify, councils will have to improve services to receive this grant. It is unfair on the rest of local government to expect them to subsidise other councils' failure to embrace modernity," he said. Pickles said councils were "sitting on" a record £16bn of reserves. The shadow communities and local government secretary, Hilary Benn, said: "It is clear that he is living in a world of his own, because he simply does not understand the impact that his decisions on funding are having on the services and local people who use and rely upon them." An estimated 70% of council income will now be raised locally compared with 56% under the centrally distributed "begging-bowl" formula grant system, according to the Communities and Local Government Department (DCLG). From April 2013, councils can channel this greater local control into encouraging local jobs and local firms via a new business rate retention incentive that rewards them for growth. It could potentially add £10bn to the economy by 2020. The DCLG also published 50 examples of where it believed councils could save money, ranging from opening a coffee shop in libraries to scrapping the post of chief executive. Pickles said: "Councils must keep doing their bit to tackle the inherited budget deficit because they account for a quarter of all public spending and still get through over £114bn of taxpayers' money each year. Today's announcement is a fair funding deal that will reward councils ready to strive for their communities and gives them another year to get their house in order. Councils must do three things to get on the right road for their residents: put our fair funding deal to work; do every single one of our 50 ways to save; and accept our council tax freeze offer. Councils that cry wolf without having done all of this are letting their residents down. Councils that put their thinking caps on now can save precious taxpayer pennies next year by cutting out waste and transforming frontline services that vulnerable people rely on. The funding deal arms councils with an average spending power of £2,240 per household. The 1.7% cut in spending power from next April compares with last year's figure of 3.3%. "Ministers believe this important concession gives councils the time they need to transform service delivery, build up their local business rate income, improve procurement and comprehensively complete the suggested 50 savings," said the DCLG. Joanna Killian, who chairs the Society of Local Authority Chief Executives and Senior Managers, said: "Today's local government settlement confirms that local government will continue to bear the brunt of public sector cuts. The cut of up to 8.8% provides no comfort for the next 12 months and, when added to further cuts in 2014-15, will present significant challenges at a time when local government should be focused on economic growth. This settlement is late and the uncertainty and speculation has only made a critical situation worse. Budget constraints measured in the billions, particularly at a time of rising demand, will require strategic, not tactical, solutions. Greater powers for local government to impact economic growth, to integrate and share across public services and greater recognition of the impact of welfare changes on local services would also help to support councils minimise the impact on the vulnerable through these challenging times. Nevertheless, this settlement will increase the risk of more councils being financially unviable and focus needs to be given to how this market failure is managed. Very difficult local choices will now need to be made and local government should have the freedom to make these choices, even when setting council tax.