Divide and rule?

27 Apr 11
By loading responsibility for the bulk of spending cuts on to councils, the government has managed to spread the consequences far and wide. The result, says Tony Travers, is that everyone is fighting separate battles to save their favourite services and overall opposition is weak
By Tony Travers

1 May 2011

By loading responsibility for the bulk of spending cuts on to councils, the government has managed to spread the consequences far and wide. The result is that everyone is fighting separate battles to save their favourite services and overall opposition is weak

The government and Opposition broadly agree about the unprecedented scale of the public expenditure reductions now taking effect. Of course, they disagree about the need to reduce the deficit at such a pace and, indeed, about Labour’s culpability for the scale of government borrowing. Chancellor George Osborne deliberately signalled the severity of his programme from the moment the ­Coalition took office a year ago.

Oddly, both the government and ­Opposition have also been happy to proclaim the awfulness of the cuts. From the government’s point of view, expectations have been talked down. For Labour, the damage to be caused by spending ­reductions must be talked up.

Now that we are a month into the 2011/12 financial year, the impact of last year’s general election result is starting to be seen. The newspapers have been full of stories about the rationing of drugs, closing libraries and reductions in police numbers. Council budgets have fallen by an average of 5%–6% as a result of cuts in government grant and the consequent impact on spending power. There are similar reductions for police and fire authorities, while the NHS and schools face a freeze in their resources.

The Trades Union Congress rally in late March brought hundreds of ­thousands of people on to the streets of London. The march was good-natured, even if a few anarchists created havoc on the edge of it. But the event took place after councils, the police, NHS and education budgets had all been set for 2011/12. There was never a chance that the chancellor’s mind could be changed.

Presumably the trades unions and the Labour Party now hope to convince Osborne to mend his ways in time for the next budget round early in 2012. If such a U-turn is to be brought about, it might have been expected that the TUC would have laid out its strategy to change his mind. Actually, the new financial year has thus far proved curiously quiet. Strikes and industrial action have been remarkable for their absence.

One reason why it is probably hard to sustain a continuous and effective campaign is the way the government has spread spending constraint relatively thinly across services and, in particular, by forcing councils to impose the deepest reductions.

Devolving blame is an old trick for ­governments. Labour councils, many of which faced the maximum cut in their grants, were forced to dip their fingers in large quantities of blood. Ministers then attacked them for deliberately exaggerating the need to reduce spending. The surprise is not so much that the government used the tactics, but the relatively meek reaction to them.

Local government had little time to prepare for the 2011 budget round. The government did not publish the grant settlement until December 13, leaving barely ten weeks to make final plans. Of course, October’s Comprehensive Spending Review had made clear the direction of travel. But no individual council could have predicted its precise grant total.

As a consequence of this minimal time-scale, each local authority has gone about budget-making on an ­individual basis.

Despite noble efforts to merge departments and share officers, there was simply not sufficient time to manage a rational and planned approach to joint provision, improved procurement and reduced overheads.

Thus, the post-April public sector is one in which some authorities have decided to close libraries, others have cut funding to the arts, many have increased charges, a number have protected street-cleaning while elsewhere entitlements to adult social services have been reduced.

But there is no settled pattern. Thus, while author Zadie Smith may have taken to the airwaves to protest about library closures, the arts lobby has been battling to save funding for local theatres and museums. Others have campaigned about roads or housing or adult care. The diversity of voices concerned with single issues has allowed the government – with some justification – to reply by saying “well what would you cut instead?”. Accidentally, the conditions for a form of ‘divide and rule’ approach have been created.

The fact that the NHS reforms have run into the buffers has further diverted attention. Nothing in Britain matters more than the health service, so lobbying by special interests for council services is always likely to come off second-best in any struggle for attention where doctors, nurses and patients are concerned.

There is still a widespread belief, encouraged by Communities Secretary Eric Pickles, that councils are wasteful. Public sympathy for the NHS or schools is unlikely to extend to local government.
By making spending cuts so quickly and without fuss, councils make life even more challenging for those who wish to defend services. The speed and efficiency of local government budgeting for 2011/12 (making deeper cuts than in other parts of the state) stands in sharp contrast to services such as defence, universities and welfare where Whitehall holds the purse-strings. There are already stories in the media about the Ministry of Defence requiring additional cash. Higher education funding reforms seem likely to overrun original cost estimates. It is not hard to imagine the painful NHS changes needing more resources to lubricate them soon.

Privately, even government supporters doubt the chancellor can deliver the full scale of spending reductions he promised in the Spending Review. Although ­councils are capable of reducing their budgets by substantial sums while broadly protecting most services, central departments have no such skills. Being closer to the core of government, it is easier for ministers with big-spending departments to plead for more cash. Because local government has proved adept at cutting spending, there will be those in central government who will argue that councils should face deeper grant cuts in future to compensate for the failure to control budgets elsewhere.

If it turns out that the effects on local services are thinly spread and that the TUC cannot raise a consistent lobby against the impact of spending ­reductions, the government will inevitably wonder how much further it might go. This is the problem now facing the unions. Unless they can mount effective opposition to local government spending reductions, Whitehall might conclude it can prune council budgets ­further in the coming years.

One possibility yet to be fully tested is that as the effects of smaller budgets are felt, people will begin to perceive that services are damaged – a new kind of ‘broken ­Britain’. It will take some time to test this theory, as the results of reduced spending will seep into consciousness over the next couple of years.

There is no Big Bang of cuts. In towns and counties across the country, some households will notice an effect on their services. But many others, notably those that rely little on public provision, will hardly be able to tell that spending reductions have taken place.

The full impact of changes in public expenditure can take many years or even decades to become apparent. Just as it was hard to measure the detailed consequences of the previous government’s major public spending increases, so will closing a library or cutting entitlement to adult care in 2011 have repercussions that will be felt during the 2020s and 2030s. As Chinese prime minister Zhou Enlai said in 1972, of the impact of the French revolution in 1789: ‘It is too early to say.’ The same is true of how current spending constraints will affect Britain in the long term.

For local government and other parts of the public sector, there can be little certainty about resources in 2013/14 and beyond. The 2010 Spending Review set headline totals for departmental budgets up to 2014/15. While councils have been told their grant allocations for 2012/13, they have no idea about the following year. Given there is likely to be a reform of local government funding, including business rate retention, in 2013/14, it is virtually impossible to know what any individual authority will have to spend in that year. Council tax benefit will also be ‘localised’ at this time.

We are therefore in a curious position, with councils and other public service institutions setting off on what is still a magical mystery tour of multi-year ­austerity. Whitehall departments, themselves under pressure to cut staff and paybills, cannot offer detailed information about service funding even two years ahead. This obscurity also makes it hard to assess the full effect of spending reductions on services.

Taking stock of the coalition’s ­programme to reduce the deficit, it is increasingly clear that local government will make the largest spending reductions, while the rest of the public sector will face cash freezes or marginal increases in spending. Whitehall departments, the Arts Council and some other institutions will also have to make local government-scale cuts.

But the level of trades union and wider public response will be muted. The consequences of spending constraints are too diffuse to be understood in such a way as to produce a massive level of anger. Britain is not Greece, as they say. Public servants, for their part, do not appear to be in a rush to take industrial action to challenge the government.

In short, the government will probably ‘get away with it’ – in the sense that there will not be civil disorder or dislocation as a result of the need to cut spending. This is not to say it will not have to give way to demands from services such as defence and health for extra resources. It is entirely possible that ministers in some departments will lobby to chip away at George Osborne’s numbers.

We will know by the time of the next election, assuming it takes place in 2014 or 2015, whether the deficit has actually been cut at the speed Osborne originally planned. There is no escape from the numbers – either for the chancellor, or for the rest of us. The success or otherwise of this exercise will, in turn, determine whether public sector ­austerity continues beyond 2015.

One thing is now certain, even if the government falls short of its deficit reduction target, government borrowing will be far lower by the time of the next election than today. This achievement will allow Labour to offer some expansion of public spending as a key part of its election platform. The Conservatives (and Liberal Democrats?), having reduced public spending as a proportion of gross domestic product from 48% to perhaps 41% or 42% may well wish to cut further. After all, the tax take in the UK remains stubbornly below 40%.

The 2014 or 2015 general election will therefore be fought to a significant degree on the difference between the need to squeeze public expenditure ­further or, alternatively, to start to expand it once more. This will be a real choice. 

Tony Travers is director of the Greater London Group at the London School of Economics

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