Fears grow over reopened settlement
Fears are growing that the government’s failure to hit its deficit reduction targets will mean local government faces further funding cuts in the Autumn statement.
Senior local government figures are bracing themselves for the reopening of the headline spending review totals as the chancellor grapples with an economy in recession and a growing benefits bill.
The current spending review will see local government’s spending limit fall by 28% between 2011-12 and 2014-15. Next year’s annual cut was due to be the lowest of the four years, with the limit falling from £23.9bn to £23.8bn, before a further £1.6bn is cut in the final year, according to figures released at the Budget in March.
But sector sources close to Whitehall believe there is at least a chance these figures could be revisited.
One senior source said: “We are aware that the Autumn Statement is going to be bad. I would not be surprised if it reopened next year’s settlement - but obviously we need to do everything we can to prevent that.”
The sector is lobbying hard to avoid further cuts. However, it is also widely felt that local government is seen as a safe pair of hands that will deliver the cuts required.
One chief executive said: “There is the very real potential for things to get tighter. The fact that the Autumn Statement is not going to be until December is an indication that things are afoot.”
The Autumn Statement is due on 5 December - a week later than in previous years - while the local government settlement is expected to come a week after, before Parliament rises on 20 December for Christmas.
A senior local government finance figure described the situation as “too close to call” and suggested the government itself remained undecided. “They won’t make a decision until they have the latest fiscal figures,” he said.
That could be as late 27 November, when economic growth estimates are due to be published by the Office for National Statistics (see box) and will update figures from last month showing a third consecutive quarter of contraction as economic activity fell by 0.5%.
Public sector borrowing figures due to be published five days before will also play a key role, coming after last week’s data showed the biggest August deficit figure - £14.4bn - since records began, sparking predictions the 2015 deficit reduction target would be missed.
Tony Travers, director of the Greater London Group at the London School of Economics and LGC columnist, said the economic and fiscal situation meant there “must be a risk that the original spending review figures are revisited”.
The government’s focus on economic growth has led some chief executives to predict a switch of funds from revenue to capital spending. One county chief executive said: “They want to invest more in the prosperity agenda, therefore there will be a move between capital and revenue spending. I read that to mean they are going to take more revenue out of our budgets.”
Such a move could help stem the contraction of the construction industry which saw the sector shrink by 5.2%, a contributory factor to the 0.5% drop in GDP seen in the second quarter of 2012.
The LGA is understood to be lobbying for any additional capital spending to be directed through local government on the basis that it is better placed than other parts of government to get projects off the ground quickly.
One official said: “Most local authorities have got a pretty long list of things they would like to do. We would certainly argue that in terms of effective capital spending there is a lot more local government can do, and a lot more quickly, than central government could.”
Office for National Statistics data on public sector borrowing and economic growth will be critical to any Treasury decision about whether to introduce further cuts to public sector spending in the Autumn Statement.
- 25 October: Preliminary estimate of GDP in Q3 2012
- 22 November: Public sector finances in October 2012
- 27 November: Second estimate of GDP in Q3 2012
- 5 December: Autumn Statement
- Mid-December: Local government settlement (possibly earlier)
- 20 December: Parliament rises