Behind the spin: have ministers lost the plot on cuts?

Two weeks after Eric Pickles said it was a “fiction” that councils would be facing 20% cuts next year, council chiefs are still none the wiser as to whether they should take this pledge at face value or continue putting in place plans for drastic cuts.

What prompted Pickles pledge – he went on to say no government would impose cuts of that level on councils in one year– were claims from Hackney LBC mayor Jules Pipe (Lab), London Councils chair, to the effect that 20% was precisely the level of cut his council was facing next year.

In cash terms, Hackney calculates that on top of the £26m in savings the council had already secured for next year, they could need to an additional £36m, with only a matter of weeks to do so before it has to put a legal budget in place.

Mr Pipe had written to Mr Pickles, setting out the council’s calculations, which are based on the government’s figures as set out in the Comprehensive Spending Review - (You can see the letter below). Following Mr Pickles’ assertion that Hackney’s calculations – and by implication a number of councils with similar calculations (such as Haringey LBC and Blackburn & Darwen) – were a “fiction”, Mr Pipe had two straightforward question for Mr Pickles, which he set out in a further letter (also attached below).

1. _{If our calculations are wrong, please tell us where they are wrong so we can correct then and thereby better plan for the cuts to come}
2. _{Or if they are not wrong, please show is the money that you will be bringing forward so we can do the same}

Mr Pickles, of course, expects councils to quietly await the outcome of the local government settlement, due in early December. In normal circumstances, when the overall funding pot has been increasing, this would be reasonable.

But as we all know, this is not business as usual. Having looked at the CSR councils rightly calculated the anticipated impact and found that the 28% cuts that Mr Pickles himself said would be spread evenly over the four years - at “an average loss of 7.25%” - were in fact heavily frontloaded, giving them very little time, ahead of 1 April, to put their plans in place. Hence the sense of urgency about what to do and the need for a steer from ministers as to whether they will be taking action in the settlement to ease the impact of the cuts as set out in the CSR.

Redundancies, for example, take time: there’s a 90 day consultation then a 90 day notice period – which all together is six months. That already takes us into May, a month into the next financial year. So councils need to act now, indeed it is their obligation, as responsible custodians of the public purse, to prepare for the worse case scenario that the CSR has indicated.

Given these worst case scenarios – frontloaded cuts of up to 30% in some areas - Nick Clegg’s assertion that councils should delay laying off staff until late in the settlement strikes most as out-of-touch whimsy.

Unless of course, ministers have something up their sleeve, as Mr Pickles seemed to suggest, to ease the impact of the cuts as set out in the CSR. Hence Mr Pipe’s two questions and calls from many other council chiefs to DCLG to get a steer on what they should expect.

And so to Mr Pickle’s response to Mr Pipe. Well, in fact, there hasn’t been one. Instead, local government minister Bob Neill sent a statement (pasted left)to the Hackney Gazette. It was, in all fairness, fairly typical ministerial speak, but given the very simple questions asked by Mr Pipe – about what are very serious issues – it is almost derisory in its complacency.

“Local authorities have been aware for some time that funding reductions were imminent and should have been looking at a range of scenarios for reducing budgets next year.

We have guaranteed a £200 million capitalisation fund in 2011-12 to help local authorities manage the costs of restructuring in the short term to release savings over the long term. And we are also giving councils greater control over more than £7 billion of funding by ending ringfencing and reducing the number of separate grants from over 90 to fewer than 10.

But councils must do their bit. There are plenty of opportunities for them to balance their books without pushing up charges and turning local residents into cash cows. They include increasing transparency, ending pointless non-jobs and reducing the salary of their Chief Executive. Use innovation and creative thinking - councils such as Wandsworth and Wigan offer MOT services. Others like Westminster, Kensington & Chelsea and Hammersmith & Fulham are looking at sharing back-office services.

Once they do this they can deliver the vital services in their area more effectively and more efficiently, protect the front line, and even improve the choice and services that’s on offer to local residents.”

Take the first paragraph:

_{“Local authorities have been aware for some time that funding reductions were imminent and should have been looking at a range of scenarios for reducing budgets next year.”}

Of course councils having been preparing for the funding cuts to come – but they have only known the level of those cuts since the CSR in October. As Mr Pipe made clear to ministers they have prepared £26m in spending cuts next year - it was the front-loading of the cuts in the CSR that has taken them by surprise – demanding a further £36m - and it is for that reason that councils are angry and demanding clarification.

Then there is the following:

_{“We have guaranteed a £200 million capitalisation fund in 2011-12 to help local authorities manage the costs of restructuring in the short term to release savings over the long term.”}

This is a mechanism - not a fund - set up set up to help councils spread the cost of redundancies over more than one year - it is not aimed at easing the impact of frontloaded cuts on front line services. More to the point, it represents around 1% of the local government wage bill. In short, it’s peanuts.

_{“And we are also giving councils greater control over more than £7 billion of funding by ending ringfencing and reducing the number of separate grants from over 90 to fewer than 10.”}

Councils have long wanted less ring-fencing and more flexibility over funding. But ministers have used the removal of ring-fencing to engage in sneaky cuts, with around £2.2bn in grant now missing in action. Further, ring-fencing of grants was, for better or worse, intended to correct the failings of the normal distribution of local government grant, by targeting cash at councils in the poorest areas, like Hackney. Removing ring-fencing therefore has, to an extent, had an unintended consequence of worsening the impact of the cuts on councils in deprived areas. It does little in other words, to help Mr Pipe balance his budget and does not answer either of his questions..

_{“But councils must do their bit”}

Clearly, they are Mr Neill – they’re shouldering a bigger share of the burden of reducing the deficit than any other part of the public sector.

_{“There are plenty of opportunities for them to balance their books without pushing up charges and turning local residents into cash cows. They include increasing transparency, ending pointless non-jobs and reducing the salary of their Chief Executive. Use innovation and creative thinking - councils such as Wandsworth and Wigan offer MOT services. Others like Westminster, Kensington & Chelsea and Hammersmith & Fulham are looking at sharing back-office services”}

Councils claim they are the most efficient bodies in public – and they are doing some or all of these – indeed Hackney is the third most efficient council in England. These are of course all pet subjects of ministers and make good headlines in certain newspapers, so let’s take them one at a time:

1. _{Transparency: Yes, plans to publish all spending over £500 could in the long run engender some savings in local government as ministers’ much vaunted army of armchair auditors press councils to drive costs down. But in the immediate term it will also undoubtededly drive up costs, as the published information leads to a spike in Freedom of Information requests. Last year, Birmingham City Council spend nearly £1m on FOI requests.}
2. _{Non-jobs and chief executive pay: Well, any so-called non-jobs will certainly be gone with the redundancies in the pipeline and while council chiefs should certainly consider taking a pay cut to set the right tone, this would make a barely imperceptible impact in the £62m in savings a council like Hackney needs to find next year.}
3. _{MOTs: Does Mr Neill seriously expect Hackney to set itself up in competition with the private sector offering MOTs as a way to ease the impact of £62m in cuts next year? Bath & North East Somerset Council estimate that their plan to establish their own MOT service will bring in a revenue stream of around £18,500 per year - after an initial capital outlay of £60,000 is paid off. But after costs the return will be circa £9,000 in net additional annual income - but with the council currently spending £6,400 per year on MOT’s that represents a total saving of just £2,600 per year.}
4. _{Shared services: Certainly a way forward for councils looking to reduce costs and many councils are exploring this option. But the savings, as Hammersmith & Fulham, Kensington & Chelsea and Westminster have admitted, can be easily overestimated. Two weeks after the high profile launch of their plan it emerged that the £100m in savings planned across the three boroughs over four years (around £10m per borough per year) could in fact be as low as £45m. Less than half anticipated and only around £5m per borough per per year - around 8% of the savings that Mr Pipe needs to make next year.}

Taken together then Mr Neill’s suggestions could save hundreds of thousands of pounds - possibly a few million. But not the £36m that Mr Pipe is asking about. I asked Mr Pipe what he thought of Mr Neill’s response. His reply was not polite. “They’ve lost the plot,” was his most diplomatic take.

“The response is the most puerile thing I have ever read. They are lost for ideas,” he added. “They seem to be cutting grants next year by an additional £36m and then offering MOTs instead. That’s alot of MOTs. I think this response is an insult to the people of Hackney”.

What councils want and need to know - and need to know now - is will ministers be doing anything to ease the impact of the shock frontloading of the government’s cuts, Mr Pipe concluded. Given the circumstances, it’s a fair question to ask.