Local government must demand a decent financial settlement

11 Mar 15

John Tizard

A recent analysis of council funding confirms that unless the next government offers some protection to local government in the next spending review, the prospects for the sector are alarming.

In their sobering and analytical article on the PF Blog last Friday, David Innes and Gemma Tetlow of the Institute for Fiscal Studies set out the financial impact of central government cuts to local authority grant. They state:

Council spending cuts have varied markedly across England, with the most deprived areas and those with rapidly growing populations bearing the brunt. It’s a pattern that looks set to continue.

Central government grants to English local authorities have been cut by more than a third in real terms since 2009/10, helping to deliver part of the overall cut to public spending over this parliament. This sharp fall in local authorities’ spending power has led to councils implementing large spending cuts, and has presented them with tough choices about how to spread these across service areas. Council spending on services in England fell by a fifth between 2009/10 and 2014/15, after accounting for economy-wide inflation. The measure of spending used here excludes education spending, since this takes place mostly (and increasingly) outside local control, and also excludes the additional responsibilities for public health and social care that local governments were given during the period.

These words should be a wakeup call to ministers and those hoping to be ministers after the general election. And if they are not, then an analysis of the social, economic, environmental and human costs of local authority cuts and the failure of expenditure to increase in response to demand should certainly create a ‘smell the coffee’ moment.

In my experience, local authorities of all political persuasions and of varying sizes are recognising that there is little or no room left to cut without digging into core services. Many expect that further significant cuts in the next Spending Review will lead them to a position of not being able to even meet their statutory duties.

As a consequence of the manner in which the coalition government has cut its financial support to local government, as the IFS writers reported, those with the greatest social challenges and the least ability to raise revenue through council tax have been hit hardest. This is both unjust and unsustainable.

Local government should be able to raise and retain more council tax and business rate revenues but given the significant inequalities between places across England, this alone will be an insufficient response to the current and expected financial shortfalls. There has to be monetary support from central government and redistribution between places.

The next government should acknowledge this and it should also work with local government to consider the most effective and equitable ways of allocating its financial support based on redistributive and fairness principles.

Other policy and legislative changes, including greater integration of NHS and social care service and expenditure, ideally, with local government having a strategic commissioning responsibility for both, could ease (though by no means eliminate) local government’s financial challenges if properly designed and funded.

The bottom line is that unless the next government offers some protection to local government in the next spending review, the prospects for the sector will remain alarming.

Many local authorities are undertaking a variety of measures to be more efficient, although every year, the scope for major savings through efficiencies is greatly diminished. These include changes to the design and nature of services; to collaborate with the voluntary and community sector; to change the relationship between and responsibilities of citizens and local authorities with more co-design and co-production (and in some cases co-payment); to introduce demand management systems; and to create sharing arrangements with other local authorities and other parts of the public sector. However, even these, taken altogether, are not likely to be enough to stave off significant cuts to services.

Increasingly, local government is positioning itself as a place shaper, influencer and advocate – as much as being a service provider or procurer. However, people still need services organised, funded and often directly provided by their local authority. This is not a need that is going to go away. It has to be addressed.

Failure to address many needs today will simply result in greater and probably more expensive needs in future years. When making cuts, local authorities should be aware of the consequences of their plans prior to implementation. Indeed, they would be well advised to adopt a holistic approach to policy, budgeting and operational activity so that they can minimise disbenefits and maximise benefits, even in times of austerity.

David Innes and Gemma Tetlow have provided a timely reminder to us all of the harsh and worrying prospects for local government if central government does not change its overtly ‘political’ approach to local government. Localism without adequate funding is simply a nasty form of “pass the parcel” - where councillors are left holding toxic parcels.

Over the next few weeks until the general election, local government (both locally and nationally) has to be assertively making the case for a change and for proper funding. And this is not a campaign that should cease on May 7. Rather, it needs to continue up to the 2015 Spending Review, whoever is chancellor, and whoever is secretary of state for communities and local government. Indeed, I fear that it will have to continue well beyond the spending review and throughout the next parliament. It has to be part of the wider campaign for greater decentralisation and localism – these can and should never be separated from the campaign for fair and reasonable financial support and redistribution. That said, I worry that at times, the excitement for the former can allow the importance of the latter to be overshadowed. The needs of citizens and communities mean that this should never be the case.

Local government has to find and use its democratic voice - and do so now.

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