The LGA's bleak financial forecast for councils poses some very tough choices for local leaders. The first job is to face up to the options ahead
The Local Government Association’s forecast that local authorities face additional funding cuts of over £1bn next year is devastating news. This comes on top of the largest ever reductions in local authority grant and expenditure which were a result of the coalition government’s spending review in 2010.
It also comes in advance of the chancellor’s autumn statement due next week and the next spending review in 2015. It does not take into account the projected shortfall of £48bn in the government’s deficit reduction plan recently identified by the SMF and RSA.
Local authorities are also bracing themselves for the impact on their finances and communities of the government’s changes to housing benefit and council tax benefit – the latter being significantly underfunded by central government leaving local government and/or claimants to plug the gap.
The social and economic impact of the wider austerity, public expenditure and welfare reforms along with the failure of the economy to grow – we could be heading for a triple dip recession and at best minimum growth for some long time – will add to the pressures on local authority services. Adult social care budgets are predicted to grow significantly over the next few years. Demand pressures are not abating.
Local authority partners across the public sector will also having to cut their budgets. Charities and the wider voluntary and community sector are seeing donations decline. They are unlikely to be able to step in and fund what otherwise would have been financed by local authorities even if this was a legitimate and prudent use of charitable funds, which it probably is not.
The opportunity that ‘localism’ seemed to offer in 2010 could, today, seem to have been an illusion. It may now seem like ‘more responsibility but less money’ and the transfer of unpopular decisions from Whitehall to town hall.
The Audit Commission this week has reported that whilst most councils have managed to meet to balance their books over the last two years and have a good prospect of doing so next year the future looks somewhat bleaker – and this before the LGA £1bn bombshell. The Commission also suggests that a number of local authorities are likely to be unable to balance their books and meet their statutory duties. Already some local authorities have predicted this scenario as highly possible.
So what are local authority leaders to do? They have legal duties to set budgets, to secure the delivery of statutory services and other unavoidable legal duties. They have political contracts and obligations to local people, communities, the voluntary sector and businesses. Few if any councillors were elected on a manifesto to bankrupt her/his authority or to savage services and through this the life chances for local residents.
The pursuit of traditional efficiencies will not be enough and most, if not all of the ‘low hanging fruit’ has been picked. Traditional outsourcing cannot deliver savings of the magnitude required; takes time and money; and locks up ever more money in an uncertain environment. Shared services and shared management can offer some savings but again usually not of the order required.
Working with the voluntary and community sector can enhance social value but the VCS requires revenue funding. Employee ‘spin out’ co-operatives and social enterprises can add value but again they take time to establish, require staff enthusiasm and need revenue funding. ‘Total Place’ type initiatives can deliver improved services and lower collective costs but not immediately. Similarly better early intervention in many social challenges can lead to long term savings and often require additional short term funding – but the emphasis is on the ‘long term’ whilst the financial pressures are immediate.
The strategic local authority leader will be looking at all these options and will wish to deploy them and other approaches that will realise short and longer term savings.
They will also be wishing to explore alternative financing arrangements including social finance – working with the VCS and others in the social sector to invest in schemes that can realise long term benefits. They may consider local authority trading opportunities but in the current environment will be cautious about incurring too much financial risk. They may seek joint ventures in such trading, with a business partner to share and offset some risk. However, not all local authorities can be sellers in a trading market.
There are other initiatives that could be developed. For example, I have previously written about the establishment of a ‘local authority exchange’ to allow authorities to share and/or trade ideas, assets, expertise and spare operational capacity. This is certainly an idea that is worth serious consideration.
However, all these ideas plus others that people are developing will not close the massive funding gaps that local government faces.
Local government collectively should
- seek to persuade central government to reduce or even halt the further grant cuts – this action is sadly unlikely to succeed
- press for greater devolution of Whitehall funds and decisions to localities – building on ‘Total Place’ plus more
- campaign against a further fragmentation of local public services
- explain in accessible language to the public what is happening and why
- consider setting up a ‘local authority exchange’
- consider how collectively it will assist local authorities that go ‘bankrupt’
Individual local authorities should amongst other actions
- involve local residents, local VCS and local businesses as well as their staff in some honest discussion about the available options
- adopt a place shaping role – influence and persuasion; sharing and ceding power and resources
- be clear about what the local authority will do and what it will not do; recognise that some activities and services will have to stop – following effective consultation and impact assessment analysis
- develop co-production strategies and practical programmes
- involve services users and staff as well as local VCS in strategic commissioning and decommissioning decisions
- devolve decision making and finances to communities and neighbourhoods but on the basis that they can make a difference at a local level but not as the basis of ‘buck passing’; enable and encourage the totality of local resources and capacity – residents, local business, faith groups, VCS (formal and informal) and the wider public sector - to collaborate to deliver outcomes and build community resilience
- adopt a local ‘Total Place’ approach with local partners – seek to co-ordinate public sector budgets to avoid cost shunting and disproportionate impact on specific user groups or communities
- invest in early intervention to create long term savings
- explore alternative service delivery models with the local VCS and staff – but be driven by values and a public service ethos and be realistic about funding
- seek alternative prudent revenue sources
- undertake ‘zero based’ budgets with the emphasis on stakeholder engagement, public value and impact
- seek to renegotiate existing long term service contracts
- adopt effective two way communication strategies with local citizens, the VCS, faith communities and businesses
I admit that it is easier to write these words than to undertake the tasks. However, if local government is going to remain true to its values and traditions it is going to have to be ready and prepared to change. The public is being battered and local government has to offer a shield of protection and a beacon of hope. In doing this local government can again prove its resilience, creativity and value.
