Suspension of belief

4 Nov 10
The Spending Review confirmed deep cuts in councils' funding along with greater freedoms to mitigate their losses. But while ministers might believe innovation will bridge the gap, the truth is frontline services will be cut, warns Dan Corry

By Dan Corry

4 November 2010

The Spending Review confirmed deep cuts in councils’ funding along with greater freedoms to mitigate their losses. But while ministers might believe innovation will bridge the gap, the truth is frontline services will be cut, warns Dan Corry

The long anticipated guillotine came down on October 20, as Chancellor George Osborne announced the big figures for spending for the next four years. To some it might feel like decapitation and time to give up. But tough though it is, the show must go on.

The brutal, raw fact is that councils have been rewarded for years of impressive efficiency gains by being given one of the toughest settlements across the public sector. Osborne described it, in something of an understatement, as ‘an unavoidably challenging settlement’.

Revenue funding from government will be cut by 26% in real terms between 2010/11 and 2014/15, an average loss of grant of 7.25% in each of the next four years. What’s more, these averages mask the fact that funding will fall sharply by £4bn from 2010/11 to 2012/13 before a rather unexplained pause in 2013/14 and another £1bn+ is lopped off in 2014/15.

The Treasury claims that due to council tax, total real-terms reductions will only be about 14%. The June emergency Budget made the assumption that after a virtual freeze in 2010/11 and 2011/12 council tax receipts will rise by around £1bn a year up to 2015/16. But this forecast looks a bit on the high side (not least if ­referendums are going to be required to raise council tax).

Capital spending will be squeezed too.  The Spending Review states that ‘capital funding from all departments to councils will fall by around 45%’ over the period. And the interest rate on Public Works Loan Board loans has been increased to 1% above UK government gilts.

In return, councils receive a virtual end to ring-fencing, less top-down bureaucracy, no Local Area Agreements or targets to report on, no Audit Commission to hassle and compare them, and some prospect of being able to borrow against future ­business rate revenue.

For those who believe in a minimalist role for councils, it’s a good swap – real localism but on a shoestring. And they think that the savings can be made if they get that localism, as Local Government Association chair Margaret Eaton, makes clear:  ‘While there is much to be gloomy about, we’ve won our central argument – that the public sector should be reformed and we should move to place-based budgets.’

For others it’s a pretty unfair combination – lots more decisions devolved downwards, but in reality only decisions on how to cut.

Even the optimists believe that jobs will go. The Conservative-led LGA estimates that at least 100,000 jobs in local authorities will disappear as a result of the CSR. Other organisations, such as PricewaterhouseCoopers go for higher numbers still. And Eaton makes no bones about the consequences for real services for real people, not just the mythological back office. ‘Some jobs will go in natural wastage, not filling vacancies and voluntary redundancy. But there will be job losses where real people dedicated in their profession won’t be there any more… we can’t escape the truth that the cuts outlined in the Spending Review will hit people hard.’

Councils, she says, will have ‘no option but to… cut frontline services that people rely on. These cuts will hurt. We know this means there will be fewer libraries, more pot holes going unrepaired, parks shutting earlier and youth clubs closing.’

Of course, it is not only the budgets of councils that matter in an area, but what is happening to police, health, probation and housing budgets. Social housing funds have been virtually halved, the police budget is down by 20% and probation has been hit hard. Even health, which has been maintained in real terms, is likely to suffer given increased demands and costs.

It is good news to hear Local Government Secretary Eric Pickles say in his CSR letter to council leaders that moves to decentralise other services ‘including budgets for GPs and police and crime commissioners’ should allow councils to ‘pool and prioritise this money more effectively’. But that might not mean that much if, being cash-strapped themselves, they are not in a sharing mood – or because strings are still attached one way or another up the silos to Whitehall departments.

One route for councils faced with this scenario is to argue that it is time to focus on their true role – not service provision at all, but making decisions for the area, while contracting out or leaving it up to the voluntary sector to provide services and develop community cohesion. Tory Suffolk council is a forerunner in this approach, aiming close to the long-time dream of some conservative thinkers, where a council meets only once a year to dish out the contracts. Others are attracted to less dramatic versions of this ideal. But, certainly, outsourcing seems to be a good game to be in right now, as the rising share prices of many major ­contractors illustrate.

But there are a number of drawbacks. In particular, will it actually save that much money?  Paul Grout, professor of political economy at Bristol University, an expert on outsourcing, argues that the easy wins and cost savings have largely already been made. Plus, a council that no longer provides any services starts to lose a connection with its citizens that some believe really matters.

Another approach, driven to some ­degree by ideology, is the EasyCouncil model promoted by the London Borough of Barnet: give every one a much more basic service and make them pay if they want anything more. This minimalist version of a council could work in certain areas and with certain services (such as planning applications or even the ­frequency of refuse collection). But can it really work if carried out over many services without creating a two-tier local society?

Beyond the councils driven by prior ­beliefs, most authorities will be trying to make the best of what they’ve got. Many will have some reserves, which will give them a little time. This is important, because they cannot be sure what the future holds, and might want to make decisions over a slightly longer time frame to avoid mistakes. But it would be unwise to take comfort in the idea that an overall cut of 26% averages out at only around 7% a year. The first chunk might look relatively easy but you need to think from the start where the next years’ cuts are going to come from or you will make major mistakes. And many cuts can be made only once.

In making decisions, councils should try to avoid a number of pitfalls. First, as John Tizard of the Centre for Public Service Partnerships says, it is essential that budget reductions are co-ordinated between local agencies to avoid unintended consequences or a disproportionate impact on any one community or service area. Tizard thinks councils can and should do more, despite disappointment that Total Place, the co-ordinated local funding initiative, was not fully embraced in the CSR. In fact, it turned into only 16 ‘community budgets’ focused tightly on tackling families with complex needs (with the declared intention of ­rolling it out from 2013).

Secondly, local authorities need to avoid making decisions that save money now only to leave a weakened community in several years’ time. Capital is the most obvious area here, but maintenance is also an issue. This will be harder than in earlier periods of tight money as cutting maintenance and other support for Private Finance Initiative projects is contractually very difficult, so non-PFI built projects will be more at threat. 

Thirdly, councils will want to think about sharing services with other councils – a move the government has been urging them to take. There are obvious cost savings to be made here. But there is an issue about how far to go. Councillors get a bit worried about sharing back-office IT systems for fear that decisions that are right for their electorate might not be supported by the folk next door. But now they are being encouraged by Pickles to share much more. As he asked the recent Conservative Party conference: ‘Is it ­really necessary for councils to have separate education or planning departments or, heaven forbid, separate press offices?’

He might have a point, and almost as soon as the CSR had been announced, the Conservative-run councils of ­Hammersmith & Fulham, Westminster and ­Kensington & Chelsea announced plans to merge virtually all their services; not only back offices, but areas that are more front line, such as their education departments. But there are concerns that the localism espoused by the government will be watered down if everything is shared, and the council can no longer ­respond properly to its own electorate.

Fourthly, councils will want to think just how much they can put services out to the third sector, community groups and volunteers to run. This raises ­fundamental issues because, in truth, these become different services. For good or bad, a volunteer-run library, theatre or leisure centre will not provide the same services as a professionally run one. And what happens if the community group collapses or loses interest? Indeed, where is the funding to come from for even this lower-cost volunteer-based approach? Is this Big ­Society or big con?

So this is what councils will be thinking about. What then will actually happen?

Hopefully, many councils will try to consult with their electorates on their cuts proposals, despite the short time period. Inevitably, we shall see many groups trying to defend their patch and it will be important to make judgements that are not excessively governed by those with the sharpest elbows. Scrutiny committees should also swing into action. As Jessica Crowe, director of the Centre for Public Scrutiny, says: ‘Scrutiny isn’t a “back-­office luxury” that can be cut to protect frontline services – rather, it’s crucial to ensure choices are made on the basis of robust evidence.’

Despite the Big Society rhetoric, the voluntary sector is clearly likely to be in the line of fire. Recent cuts already made in Hammersmith, for example, left groups competing furiously for diminished budgets, with a neighbourhood centre, a refugee forum and a families project losing out to other equally worthy organisations. Those active in the Big Society are clearly going to have to be successful lobbyists.

And it is unlikely that the workforce is going to take all this lying down; not least since it has already been hit with pay freezes following several years of below-inflation pay increases and the prospect of increased pension contributions. Many councils have already begun to soften up the workforce. Birmingham, for instance, recently sent Section 188 notices to 26,000 employees advising them of possible changes to their terms of employment. Although strongly denied by the council, this is seen by the unions as effectively handing redundancy notices to those who do not accept. In other cases, there will be debates about terms and conditions for outsourced workers.

Unison local government head Heather Wakefield gives a flavour of the difficult relationships ahead: ‘If councils want their employees to help them maintain high-quality services, they need to treat them with respect – not impose cuts to pay and conditions on a workforce that is already the poorest paid in the public sector.’

The future then is uncertain as councils confront these issues. Maybe we can get a sense from the US as to what it will be like. In mighty California, spending cuts of the scale needed could, in the end, come only from areas where there was a big level of spend  – education in their case, perhaps social care and social services in ours. Layoffs, furloughs (involuntary days off) and reductions in courses and grants have been rife. Cost-shunting has developed with, for example, more mental health patients ending up in police custody. Governor Arnold Schwarzenegger has even recommended major cuts in spending on the great national parks.

Meanwhile, in other states, temporary taxes have been brought in to cover the deficits, and gimmicks such as lease-back arrangements are in full swing.

This mix of major cutbacks in places where lots of money has been spent, reductions in terms and conditions for employees, attempts to raise more revenue (charges are the main hope in the UK) and creative thinking on the accounts all look likely here. It seems as though we will hear much of this in the coming years, along with back-office sharing, outsourcing, the use of volunteers, mutuals and co-operatives to run services more cheaply, plus a very reduced and ­disillusioned workforce.

There are always opportunities in ­periods of cutbacks. An ability to focus and cut out waste, overlap and inefficiency, will be at a premium. But it will be tough. Pickles told the Tory conference that: ‘There has never been a better time to be involved in local government.’ We will see how many sign up to that ­belief in the months and years ahead.

Dan Corry is a former senior adviser on the economy at Downing Street

Did you enjoy this article?

AddToAny

Top