Just one week before Christmas, councils found out how much money they will receive from Whitehall in the next financial year. Local government minister Kris Hopkins set out the funding settlement for 2015/16 containing an average cut of 1.8% in spending power, calculated using government grants, revenue from the council tax and locally retained business rates.
This cut is a necessary part of the deficit-reduction effort, Hopkins said. No councils will face a loss in spending power of more than 6.4%, the lowest of the parliament, he added.
‘English local government is expected to spend over £114bn this year – around a quarter of all public spending. This settlement therefore recognises that local authorities continue to make a vital contribution to helping pay off the deficit,’ Hopkins told MPs on December 18.
‘As planned, we have kept the overall reduction to 1.8% – lower than last year and one of the lowest levels of reduction under this government. If we include the funds that government has provided to support local transformation, the overall reduction is even lower at 1.6%.’
Ahead of the confirmation of the figures, expected in the week leading up to the parliamentary recess on February 12, the settlement has promoted debate on both the extent of the reductions and how to deal with them.
At the Local Government Association’s annual finance conference on January 6, Hopkins insisted that, as a former councillor himself, he recognised the difficulties imposed on authorities by the reduction. ‘I’m not standing here from a position of ignorance, I know the challenges you face,’ he said.
He noted, though, that the sector is making varying degrees of progress on reforms to services so they can deal with the reductions.
‘Not all authorities have made that journey, and some are quite early on in that process,’ Hopkins said. ‘But there isn’t time for a Manchester-style evolution over 10 years or so [which led to a devolution deal being agreed with government last November] – we need to get to an accelerated position as soon as possible to make sure that we can make the transformations that are needed for services.’
However, Hopkins faced criticism for the 1.6% figure as the settlement includes both ring-fenced grants from Whitehall that are essentially passported to councils and Better Care Fund spending, which is being pooled with the NHS.
An analysis by CIPFA found councils' ‘unfenced' spending power is reduced by 6% once allocated money and pooled resources are excluded, while the LGA said it could be as high as an 11.8% average cut if locally-raised council tax and money to cover new burdens is removed. Dick Tonge, Conservative cabinet member for finance at Wiltshire County Council, said the government’s spending power calculation had undermined councils.
‘We’re saying that we have to cut services locally or manage things differently in order to get our costs down, and you’re going about saying there is only a cut of 1.6%,’ he told Hopkins. ‘But there is ring-fenced money included in that. You’re making our life extremely difficult, because if someone comes up and says, “Eric [Pickles] says it’s 1.6%, you’re lying to us”, then you get into a complicated argument that some of that is the Better Care Fund, which is ringfenced, we can’t use it for other things. It’s made it very difficult for us to explain the cuts we’re going to have to make.’
Responding to the comments, Hopkins acknowledged that councils have to make difficult decisions, which will continue regardless of the general election result. ‘It’s not just about 1.8% being taken away – it is about rethinking the way you think about public services. You’ve got to find a way of doing it, and some authorities are finding a new way of doing it.’
Among possible reforms, he highlighted devolution as a ‘massive opportunity’. The agreement to devolve funding to support business growth and skills to Manchester’s combined authority shows the potential for authorities to make changes to boost local economies, he said.
‘For places like Manchester, it’s not just about having a mayor, it’s about being able to show the thread that runs through local services – it’s the mission of everyone there to make sure that people all became positive economic contributors to the economy.’
Echoing Chancellor George Osborne’s words at the Autumn Statement that his door is open to discussions on powers, Hopkins urged councils not to wait for devolution to simply happen and solve funding dilemmas. ‘You’ve got to get on a train and you’ve got to have a plan, and you’ve got to be sure about what you want to do and justify it,’ he said. ‘I think that’s what Manchester has done and is what Sheffield and Leeds are attempting to put together. There is a really positive conversation to be had.’
Despite this, those involved in the Manchester deal are already warning that these very changes could be undermined by the reductions in funding that have already taken place, and those that are still to come.
Ian Duncan, the director of finance at Trafford Council – one of 10 councils that make up the Greater Manchester Combined Authority that reached the flagship agreement – said reductions hit authorities dependent on government grant harder: ‘What is clear is that the metropolitan authorities have been on the thick end of some of this.’
He highlighted the National Audit Office’s Financial sustainability of local authorities report, which found that auditors of single-tier and county councils said 16% had difficulties in delivering their 2013/14 budget, including 22% of metropolitan districts.
‘It will be interesting to see how that changes going forward,’ he said. ‘My own authority, where we have a very good record of delivering within budget ... we are reporting for the first time difficulties in achieving all of the savings.’
Although moves towards place-based funding agreements through devolution presented a possible boost, he indicated that funding reductions themselves could hinder progress. ‘Greater Manchester had the announcement back in November, but is that enough?’ he asked. ‘Certainly in our budget plan, we’re not going to do anything in devolution until it makes significant contributions.’
It perhaps captures the mood of local government as it prepares for the fifth full year of lower funding that even policies long seen as opportunities now seem to carry costs.
LGA chair David Sparks summed up this view: ‘We have to make the funding that we do have go further through devolved powers, so we can make better decisions at a local level – not from Whitehall. Unless we protect councils’ budgets in the short term, there will be nothing to devolve powers to in the long term.’
