Local government finance: what a difference a year makes

October 27, 2022  

One year on from the spending review, Polly Lord looks at the current picture of public service funding ahead of anticipated cuts in the Autumn Statement.

On the anniversary of the spending review, and one year into its three-year cycle, the prospects for local public services look bleak. The positive change of direction taken by Government last year – an annual boost of £1.6bn to council budgets – has been losing value in real terms as inflationary pressures skyrocket. But far from using the upcoming Autumn Statement as an opportunity to meet these new cost pressures, we look set to enter a new round of austerity.

£900m funding gap threatens districts’ ‘essential’ services (Local Government Chronicle, 29 September 2022)

One in six English councils could run out of money by next year even without further budget cuts (Local Gov, 6 October 2022)

The spending settlement for local government is no longer sufficient to meet demand in adult social care, children’s social care and neighbourhood services. (The Institute for Government, 17 October 2022)

The current funding systems for schools, councils, public health and the police are ‘not fit for purpose’ (The Institute for Fiscal Studies, 20 October 2022)

‘Worse than austerity’ – councils warn that any cuts to their budgets next year would mean they are only able to offer the bare minimum in local services (County Councils Network, 27 October 2022)

Headlines like these have become a familiar sight over the past month. A year ago today, the Government announced the results of its Spending Review 2021. It provided English councils with £1.6 billion of new grant funding for each of the following three years. This led to increases in core spending power (the amount of funding at councils’ disposal, including council tax revenues) of 3%, leading the Government to announce that it was ‘the largest sustained rise in core spending power in more than a decade, building on year-on-year real-terms increases for local government since SR19, largely necessitated by the pandemic response.’ As we said at the time, this statement distorted the true picture of local government finance, with the increases provided for by Treasury only taking the settlement back to 2014/15 levels, as it was in the first half of the decade that austerity policy really bit hard into budgets.

…the Government’s approach to fiscal responsibility is salami-slicing departmental budgets and seeking efficiencies for short-term gain.

A year on from the spending review though, things are worse – inflation has dramatically increased, alongside higher National Living Wage and energy costs – leaving councils facing £2.4bn in extra costs. Local government is currently facing a funding gap of £3.4bn in 2023-24 and £4.5bn in 2024-25, according to the LGA.

Budgets are already over-stretched, and demand is rising

Because councils are legally required to set balanced budgets annually, they are being forced into impossible decisions and trade-offs to ensure they spend within nationally-set constraints. One in six councils are reportedly considering reductions to bin collections, perhaps down to once a month. Councils could consider not filling potholes, although latest estimates suggest the current backlog alone would need £12bn to repair local roads and would take councils 10 years to do so. The adult social care budget already needs an extra £6bn to face the current pressures, with a further £7bn needed to deliver on the range of statutory duties under the Care Act 2015.

The ‘difficult decisions’ that the Government needs to make come following a decade of austerity and severe cuts, and that’s what makes this current impending situation so challenging. Indeed, for every £100 for public services in 2010, only £86 in real terms was spent in 2020.

Despite the previous name of the Autumn statement promisingly referring to the “medium term”, the Government’s approach to fiscal responsibility is salami-slicing departmental budgets and seeking efficiencies for short-term gain.

Showing strength is to invest the time, love and yes – money – into our public services to prevent future problems.

The new PM said in his first address to the nation that he would “not leave the next generation … with a debt to settle that we were too weak to pay ourselves”. Yet the significant debt that we have built since 2010 is a democratic, social and community debt which has decimated public services and are being held together by the good will, hard work and belief of our public servants and through the tenacity of our communities.

If we were serious about thinking about future generations, we would be investing in the measures to mitigate and adapt to the impacts of climate change. We would be investing in strategic functions within councils who can align opportunities (and budgets) to enable place-shaping at the hyperlocal level. We would be investing in preventative services to mediate the impact on acute provisions for now and the future.

Showing strength is to invest the time, love and yes – money – into our public services to prevent future problems. It is using the Autumn Statement to redesign what we do and how we do it by enabling local leaders to build resilience for future generations. Otherwise, we risk running our public services into such a deficit there will be no way back.

Photo by Nick Fewings on Unsplash

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