Town halls feel the pinch in a tight settlement

11 Oct 07
Town hall leaders are warning of cuts to services and jobs after the government's long-awaited Comprehensive Spending Review and Pre-Budget Report this week gave them a meagre 0.9% annual funding increase.

12 October 2007

Town hall leaders are warning of cuts to services and jobs after the government's long-awaited Comprehensive Spending Review and Pre-Budget Report this week gave them a meagre 0.9% annual funding increase.

Local government was one of the biggest losers in what was a tight settlement all round, with Chancellor Alistair Darling setting out to Parliament public spending increases averaging 2.1% in 2008/09, 2009/10 and 2010/11 on October 9. That is just over half the 4% annual average growth since 1999.

Sir Simon Milton, chair of the Local Government Association, condemned the sector's settlement as 'the worst in a decade', pointing out that it relied on authorities achieving £4.9bn of efficiency savings over that period. He told Public Finance it would have serious consequences on key services such as adult social care – and council tax bills.

Milton warned that authorities would struggle to keep tax rises below the government's 5% cap and dismissed government claims that the settlement would enable councils to hold increases at well below the limit. 'It is going to mean above-inflation rises in council tax over the next three years, near the government's 5% capping limit,' Milton told PF.

'To meet that, authorities will have to look for cost reductions through efficiencies, through headcount reductions and through reductions to services. We will see a continuation of the trend among councils of raising the threshold for eligibility for services.'

But in a pre-emptive move, local government minister John Healey made clear immediately after the CSR statement that he would not accept the LGA's arguments. 'There is no excuse for excessive council tax rises or a reduction in the quality of services,' he said.

'This is a tight but fair settlement for central and local government alike. We all face tough choices and local councils need to demonstrate leadership in showing they can govern efficiently.'

Under the settlement, combined revenue support grant and national non-domestic rates will rise from £23.9bn in this financial year, to £24.8bn in 2008/09, £25.7bn in 2009/10 and £26.5bn in 2010/11.

Milton warned that this also meant bad news for the unions over local government pay. He urged Unison, which is balloting its 800,00 local government workers, to abandon its threat of strike action and accept the offer of an average 2.47% rise for staff.

'We have made our offer, which has been accepted by two of the unions. I would hope that members of Unison would see that there is no more money left in the pot.'

But his call drew a sharp response from Heather Wakefield, Unison's head of local government, who told PF that the ballot would go ahead. 'Inflation is running at 3.8% and average earnings across the economy are increasing by 3.1%, so the employers are asking our members… to take a pay cut,' she said.

Wakefield's comments reflected wider concerns among the trade unions about public sector pay, several of which expressed anger that Darling reiterated the 2% cap for the 2008 to 2011 period.

The moderate FDA union, which represents Whitehall mandarins, attacked the move as 'unwarranted'. General secretary Jonathan Baume said it 'severely undermines the role of the independent pay review bodies, which determine pay levels for many key public sector workers'.

But Darling's statement did not have a great deal for the public sector to celebrate. The NHS fared best with a 4% average annual increase, but even that is less than the 4.4% that Sir Derek Wanless said was the minimum requirement in his review of its future funding requirements.

There was 2.1% a year for transport, an annual 1.4% for the environment, while the Home Office got a reprieve on its budget freeze and will now see its funding rise by 1.1% a year as a result of extra funding for security.

Education also received a small top-up to its previously announced settlement, giving it a real-terms annual rise of 2.8%.

The departmental funding allocations are accompanied by an overhauled set of Public Service Agreements. These have been reduced to 30 and many charge more than one ministry with responsibility for meeting their objectives.

They have been grouped together under four broad headings: sustainable growth and prosperity; fairness and opportunity for all; stronger communities and a better quality of life; and a more sure, fair and environmentally sustainable world.


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