5 reasons the Spending Review wasn’t good news for local government

The Chancellor’s Budget and Spending Review was delivered in an optimistic tone.

The “cash splurge” included a real terms boost to departmental spending of £90bn over three years – quite a shift after a decade of austerity. And for once, councils were not overlooked.

Local government received its first boost to core revenue funding in over a decade – £4.8bn over three years.

So why is this not simply brilliant news for the sector? Here are five reasons we need to look closer at the detail underneath the headlines…

1. Council spending power increases are not the same thing as council funding increases

Language is important for local government finance – sometimes the choice of words can make measures seem more significant than they are.

This is the case for the term “spending power”, which was widely hyped as increasing by 3% a year for councils for the next three years. But the definition of spending power includes council tax rises as well as the funding increases.

So that 3% increase isn’t all coming from the Treasury. A chunk of it is coming from assumptions that councils will put up council tax for their residents.

The Spending Review confirmed that councils will be able to increase council tax by 2% and apply an additional 1% social care levy.

That leaves councils with the difficult decision on whether to increase tax on their residents in the context of a cost of living crisis and rising inflation.

For those who do decide to increase council tax, it is also important to recognise that councils have varying council tax bases in areas with higher and lower property values. The sums raised by this 2% plus 1% allowance will vary according to different councils.

2. Spending power increases only take us back to 2014/15 levels

Local government budgets have borne the brunt of austerity over the last decade. So, it’s important to consider the 3% increase in spending power in the context of the last ten years.

The graph below shows what has happened to council spending power in the last ten years as a result of budget cuts. The broken red line plots the impact of the 3% increase to spending power over the next three years.

Figures up to the present from the National Audit Office

As we can see, the increases promised by the Treasury only amount taking spending power back to where it was in the financial year 2014-15.

So while the increase certainly reverses the flat spending power in recent years, it is not enough to eradicate the impact of austerity in full.

In fact, if council budgets were only increased by 3% a year, it would take until the early 2030s to regain the spending power councils had back in 2010.

And of course, even having an ambition of resetting council budgets back to the start of the last decade is a low one – given population growth and the increase in demand for services over time.

3. Wage rises will increase council costs

Responding to the growing cost of living crisis, the Chancellor made some significant moves to relax pay restrictions and boost take-home pay.

The public sector pay freeze has been ended and the National Living Wage has been increased 6.6% from £8.91 an hour to £9.50.

This is significant for the hardworking council staff who will benefit from these measures, but it needs to be recognised that a significant chunk of increased funding will be immediately consumed by these higher workforce costs.

The Local Government Association (LGA) estimated that the last rise in the National Living Wage cost councils £1 billion; the vast majority spent on increasing pay for contracted and agency workers in sectors like social care.

4. More local funding is coming from centrally controlled pots

The Spending Review confirmed the growing preference for fragmented funding pots held by the Treasury over the principle of resourcing local areas properly overall.

We see this play out in capital investment funding. The Chancellor used the Budget to announce the projects and places to have received money from the first round of the Government’s Levelling Up Fund and Community Ownership Fund.

The funds are intended to support local infrastructure and asset transfer projects respectively in all four UK nations. They were open to areas to submit funding bids for and compete against each other for allocations.

While the underlying theory is that competition is healthy and helps ascertain value for taxpayers’ money, the approach contradicts wider commitments to ‘level up’ and reduce regional inequalities.

Approximately 70 places in the UK considered a high priority for Levelling Up funding by the Government – places such as Blackpool, Hartlepool and Merthyr Tydfil – were not allocated money from the first round of bids. 

This preference for individual funding streams over core sufficient funding in other parts of the Budget focussed on revenue funding for local services too. The extra £500m for early years including a network of family hubs and an extra £640m on homelessness appear at first glance good news.

But they fill funding gaps created by cuts to council budgets over the years – where previously Sure Start provision and Supporting People funding provided support respectively to families and people facing homelessness.

This tendency to shift how resource is allocated to local areas is problematic for councils and their partners. Not only are areas forced to compete with each other for finite resources, but they are not given the certainty of long-term funding that helps planning and supports investment decisions.

Centrally-controlled short term funding streams are the antithesis of approaches that would sustainably reduce regional inequalities and enable local institutions to work with communities to improve outcomes.

5. Until social care becomes viable, council budgets are at serious risk of being unviable

After so much hype in recent months about the Government’s commitment to reforming social care, it was surprising the Chancellor’s speech didn’t mention it.

While the Government drags its feet over resolving our growing social care crisis, council budgets will continue to take the financial brunt of this inaction. At present, there is a risk that social care pressures continue to overwhelm council budgets in practice.

The LGA estimated that excluding the impact of costs associated with the pandemic and growing demand, councils face cost pressures of £2.6bn a year just to keep services at 2019/20 levels of quality and access.

This estimate puts the Chancellor’s commitment of £1.6bn a year into perspective – it is £1bn short of what is needed. The LGA’s estimate breaks down as £1.1bn for adult social care and £1.5bn for other services.

While the magnitude of social care pressures is not fully addressed by Government policy, there continues to be a risk of a squeeze on other service areas such as the environment, housing and culture.

Conclusion

These five reasons not to be cheerful about the Spending Review’s measures for local government are not intended to be overly gloomy. Certainly after the last ten years any clear cut increase in council core funding is to be welcomed.

But our reduced price prosecco will remain on ice until we see the Government recognise the national strategic significance of a well-resourced local government sector – freed from financial uncertainty and empowered to work with residents to reach the great potential that exists across our country.

Photo: Number 10 on flickr

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