If local government is to make the necessary savings, it must wrench all possible fundraising tools from the Treasury
The political parties will be arguing that 2010 is the year of momentous electoral choice. But many local government commentators are beginning to wonder whether there is a substantially different path to the predictable course of financial events.
All political parties are paying homage to localism, while fearing to tread into the braver terrain of local government finance reform. And all the political parties are promising to save ‘frontline’ services from cutbacks – chiefly health, policing, schools, defence – while conspicuously excluding local government grant from the cherished protected few.
With predicted cuts of 20%–23% in non-health areas, councils have already begun applying the brakes, even though, technically, the next financial year is still pencilled in for supposedly 4% real growth.
If the Conservatives are elected, then an immediate Budget will want to get the bad news out early. If Labour stays in power, then a Spending Review this summer might do something similar. So how are the ‘Cinderella’ services across local government supposed to prepare for the decade ahead?
Unless the local government community is careful, it might feel the cold consequences of the nation’s obsession with deficit reduction. Even if the next administration does understand the economics lessons of John Maynard Keynes, local authority grant is unlikely to be the principal vehicle for counter-cyclical expenditure. In short, local councils will increasingly have little choice but to fend for themselves.
This scenario presents interesting options. While leaders and chief executives have grown used to looking to Whitehall for programme budgets, bidding regimes and new legislation, these will be less common. If councils accept this fate, they would be wise to wrench as many tools as possible from newly elected ministers to enable them to work.
First, councils need to cement the currently vague intentions at the centre to decentralise financial controls. Councils need to press the Treasury to allow them to earmark income from future development to finance core infrastructure, particularly as capital grant will be decimated. Any revenue buoyancies that councils can extract from the Treasury should be properly exploited. Councils should argue that multi-year financial flexibilities are needed locally and not just nationally.
Secondly, councils should collectively insist that new ministers recommit themselves to policies that have brought about certainty and stability in recent years. We need the restoration of the three-year Spending Review. Capital allocations need to be accompanied by longer commitments. The ‘prudential borrowing’ regime must be sustained.
Thirdly, councils should endeavour to ‘sweat’ their existing assets and powers systematically. These include: progressing the creation of a Local Authority Collective Fund to reinvest council reserves in infrastructure projects; creating vehicles for pension fund trustees to invest in regeneration; and exploring the potential for a renaissance in the municipal bond market.
Entrepreneurial councils will look to establish municipal enterprises. Leaders and chief executives will use these advantages to support local businesses and the housing market.
Finally, councils must not focus on efficiency and the paring back of services at the expense of performance and innovation. They must not wait for the Local Area Agreements to be rejuvenated but should assert their own objectives. The Audit Commission should encourage alternative financing techniques rather than risk aversion. And local authorities must secure more clarity from new ministers on the laws allowing innovative practice.
These four aspects represent the backbone of the reform needed if local democracy is to thrive and improve services for the decade ahead. Without these basic advances, the threat of stagnation and retrenchment of the financial position in local government will be all too real.
Chris Leslie is director of the New Local Government Network
