Local government is on the sharp end of the forthcoming Spending Review cuts. It needs to wise up about finding more innovative ways to cope
The financial challenge faced by local government continues to escalate. No sooner has the dust settled on the 2013 Budget than a government-imposed cap on benefit payments is rolled out across four London boroughs. While budgets are being balanced in the short term we know that further welfare reforms and spending cuts are just around the corner. Councils need to urgently pick up the pace of change and pilot new financial models that secure community investment for the long term.
As Tony Travers has previously written on the PF Blog, the 2013 Budget outlines that in the first two years of the next parliament Departmental Expenditure Limits are to be reduced by a further £15 billion. With the NHS, schools, international development and defence equipment ring-fenced from cuts, the savings burden will again fall disproportionately on councils. Therefore, it now seems likely that local government, along with some other central services, will face real terms reductions of approximately 50% of government grant over the period 2011-12 to 2017-18.
NLGN’s new report Gaming the Cuts, launched tomorrow, addresses what such spending reductions may mean on the ground. Financial pressure could see a default retreat amongst councils to the role of residual service providers. If this is the case, then many non-statutory services could be stopped entirely, whilst statutory services will struggle under the burden of increasing demand.
Fortunately, some are experimenting with new financial models to help mitigate the impact of spending reductions. To give a specific example, social impact bonds are repositioning councils as proactive, place leaders. Birmingham City Council and Essex County Council, authorities that have a combined budget of over £4 billion per annum, are exploring the potential of such social investment.
Essex has prioritised early intervention for vulnerable adolescents. Its £3.1 million, five-year social impact bond will finance a scheme to deliver intensive support to 380 young people. Social investors will get a return if around 100 adolescents don’t enter care. The purpose is to avoid potential future crisis situations whilst also saving money for the public sector. An estimated £9 billion is spent annually on troubled families – an average of £75,000 per family each year – so such approaches could have a significant impact if they were scaled.
Birmingham is also looking to the long-term. The ambition of its social investment model is to reduce the number of children in costly, social care whilst also improving their life chances and reducing the need for future welfare support.
Admittedly, social impact bonds are new tools in an immature market and more evidence is required on their efficacy. But they serve to exemplify the structured innovation and experimentation that will be essential to local government’s future.
Councils need to look beyond salami-slicing within departmental silos and must instead set out long-term goals to improve outcomes for the people they serve. Innovative financial models are an important means to meet the ends of this ambition.
Joe Manning is a senior researcher at the New Local Government Network
