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Never mind the Budget – but beware the Brexit buccaneers

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LGC’s commentary on Brexit pressures

Today MPs gathered in the Commons to begin debating the European Union (Withdrawal) Bill.

It is the first of eight scheduled days between now and Christmas for discussion of the bill, to which MPs from all sides have tabled 470 amendments. The government says the bill’s purpose is to copy-and-paste EU rules into UK law to ensure a smooth Brexit transition, but critics claim it will allow the government to change laws and regulations without proper parliamentary scrutiny.

Many MPs are set to use the debates as an attempt to prevent the UK leaving the single market and customs union, or leaving the EU with no trade deal.

So far, much of the public discourse on Brexit has focused on the impact on the private sector, from fears big banks and manufacturers will up-sticks to mainland Europe to worries over chaos in import and export prices. But writing today for LGC, Metro Dynamics director Mike Emmerich (speaking in a personal capacity) warns of the impact on the public sector and, in particular, local government.

Mr Emmerich says whether Brexit is hard, soft, or something in between, it will cost the UK something in the region of £40bn-£60bn at least just to leave. While there is plenty the chancellor Philip Hammond could do that would benefit local government in the Budget next week, any moves on skills, transport or housing would be completely undermined by the cost of a bad Brexit, Mr Emmerich says.

Local government, which Mr Emmerich argues tends to bear a disproportionate amount of public spending cuts, would be left attempting to “drain oceans with teaspoons” in the face of such a disaster. He argues that as ‘Spreadsheet Phil’ is the person whose careful financial plans stand to be wrecked by a bad Brexit, Mr Hammond must use his time at the despatch box next week to bring “some of his more buccaneering colleagues to heel”.

Rob Whiteman, chief executive of the Chartered Institute of Public Finance & Accountancy, voiced similar concerns about the consideration given to the public sector in amongst the Brexit wrangling. “It is imperative that the consequences for the public sector are kept in the foreground during the Brexit negotiation process,” Mr Whiteman wrote last week.

In fact, councils would be better placed to deal with Brexit fallout (and everything else thrown at them) if they had medium-term financial stability possible only through a commitment from the government to fully fund key services before implementing further reforms. Much as many readers will agree with him, whether the government has the capacity to even consider this is another matter.

In an interview with LGC last week, Sir Michael Lyons expanded on this point further. Sir Michael, who led the Lyons Inquiry into the role and funding of local government a decade ago, claimed the inequalities he cited then – between local and central government and between rich and poor communities – still had not been tackled. This in itself had contributed to the “sheer anger” in post-industrial communities that led to the Brexit vote, Sir Michael said. Even now, fundamental changes to the funding of local government, such as the regular council tax revaluations Sir Michael recommended in his report, are as vital as they are unlikely. Without a more stable funding system, the impact of Brexit will likely hit communities even harder.

The financial impacts of Brexit are huge but even they are not the whole story. The effects, if not properly managed, may cause damage in a variety of specific services; a new immigration system may well reduce the supply of health and social care staff, for instance, and the ending of pan-European cooperation on child trafficking could present councils with serious safeguarding problems.

It’s for this reason that next week’s Budget feels like it may be a washout whatever Mr Hammond does – and the chancellor is not known for making flashy moves, in any case. While Mr Hammond is trying to keep the helm steady, swashbuckling at home and abroad may yet run him aground.

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