After crying ‘wolf’ for several years, councils are now faced with very real difficulty in balancing their books, warns Nick Clifford.
More than 50 years ago, in 1962, there was a hit for Lonnie Donegan called ‘The Party’s Over’. 40 years ago Tony Crosland, then Secretary of State for Local Government, gave a speech to council officers saying the party was over. In 2008, George Osborne warned the Conservative Party Conference that the party was indeed over.
“We built an economy on the engines of finance and housing and government spending, and the government never stopped to think what would happen if those engines stalled. Now the credit has dried up. The engines of the economy have stalled. The party is over.”
“For the next few years times will not be normal. Perhaps people have used the words ‘economic crisis’ too often in the past. They have shouted ‘wolf, wolf’ when the animal was more akin to a rather disagreeable Yorkshire terrier. But not now. The crisis that faces us is infinitely more serious than any of the crises we have faced over the past 20 years … With its usual spirit of patriotism and its tradition of service to the community’s needs, it is coming to realise that, for the time being at least, the party is over … We are not calling for a headlong retreat. But we are calling for a standstill.”
However, over the past five years most commentators – ranging from the Institute for Fiscal Studies, to the Local Government Association, to local government chief executives – have all agreed that there has been a 40% reduction in public funding over the course of the last coalition government. And there is still more to come – on a similar swingeing scale: approximately £12bn. As the overall spend on local government is in the region of 12 times that figure, this equates to about 8%. The Institute for Fiscal Studies estimates that over the period of the Coalition Government there was a per capita spending cut of 23.4%. And the proportion of spending that local authorities have borne from their income has increased from just over 40% to now just over 50%.
The IFS also estimates that while income has been reducing significantly for local authorities, they have been cutting services at an even higher rate. Much of this has been in areas that are relatively invisible to begin with (planning and development control costs, regulation and safety, housing and transport – all where the impact of cuts will not be seen immediately). While this has given councils the opportunity to place their ‘budget surpluses’ into reserves (about 5% of annual spending) this will perhaps enable there to be investments in real reform of council services over the course of the next parliament.
What is being predicted, even by a former head of the Civil Service, is an unacceptable squeeze on local government as other parts of the government budget are being ‘protected’. The Government policy on reducing the budget deficit (the annual gap between what is spent and what comes into the Treasury by way of income) is making some headway, but in the last financial year it was still expected that the UK would have borrowed just over £91bn to cover the added cost of spending over its receipts. The total debt was expected to be £1.46 trillion at the end of the 2014/15 financial year – nearly 80% of our GDP. We are still not in a good place.
So the prediction is that by 2019/20 the UK will be running a budget surplus (and therefore beginning to pay down some of the overall debt) – but not yet, so there is still some more borrowing to come. What appears to be happening overall is that the Queen’s Speech suggests that income tax, VAT, national insurance will all be pegged. Alongside this, there has been the Pickles policy of capping local authorities from raising council tax, which is expected to continue. So there can be no ‘budget balancing’ from raising the income side of the Treasury accounts. This will all have to come from lower spending. However, even with the expected £3.5bn of support to local authorities from the NHS budget through the Better Care Fund for the care of the elderly, the costs of care and the numbers of elderly people needing care are set to increase.
The new Conservative Government has set out its stall very clearly – there will be a clear and definite cap on the income side (no new taxes). A balanced budget can be achieved only by cutting spending. The current system of allocating government support to local authorities will affect authorities disproportionately. The pressure is building on the budgets of all local authorities and with this there will be significant pressure to radically alter the way that all local services are planned and delivered.
At some point the public will realise that they cannot have their cake (local services) and their ha’penny (low taxes).