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Party conference pledges indicate bleak outlook for council budgets

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Councils must prepare for a “shrunken future”, commentators warned this week, as party conference commitments on public spending and tax cuts posed the threat of further cuts to local government.  

The three main political parties all pledged to protect the NHS in the next parliament, with Labour proposing to increase spending by £2.5bn and the Liberal Democrats committing an extra £1bn in real terms.

Other departments may yet receive protection. Michael Fallon, the defence secretary, has called for Britain to continue spending 2% of its GDP on defence.

Rowena Crawford, senior research economist at the Institute for Fiscal Studies, told LGC the government’s March budget plans implied average spending cuts across all departments of about 10.6% between 2015/16 and 2018/19.

The Labour party’s looser fiscal target would allow it to spend an extra £28bn, she said, adding that if the party was in power and chose to spend this on public services, cuts to departmental spending could be 2.6% rather than 10.6%.

However, she warned: “If a future government were to protect the budgets for schools, international aid and the NHS from real terms cuts, the budgets for ‘unprotected’ departments - including spending on local government - would need to be cut by more than the figures above imply.

“As  a rule of thumb the ‘protected’ departments amount to about half of departmental spending, so the cuts across unprotected departments would on average need to be around twice as large as the cuts to total public service spending.”

Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, told LGC councils’ financial outlook could be bleaker than expected because of the costs of protecting NHS spending, Conservative pledges to cut tax and the burden of an interest rate rise. A 1% rate rise would add £8bn to the national debt, he said.

“We have all been saying councils are between 40% and 50% through their cuts. It may be they are only a third of the way through and there’s worse to come,” he said.

Jonathan Portes, director of the National Institute of Economic and Social Research, said: “I would say the financial outlook for local government after the general election is pretty dreadful.

“Forecasts get produced, but they have to be taken with a pinch of salt as the economy changes. I think the bottom line is clear that the public spending climate is going to be pretty tight, but tighter still if there is a Conservative government.”

Writing for LGC this week, Professor Tony Travers, director of the Greater London Group at the London School of Economics, warns local authorities “must plan for a shrunken future”, arguing that local government, police and fire services could face the brunt of cuts.

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