It might seem only yesterday that the Budget took place, but already the next major fiscal event is upon us. Local government is now waiting to see what lies in store in June’s announcement, described by the Treasury as a spending ‘round’ for just one year rather than a larger scale ‘review’.
When chief secretary to the Treasury Danny Alexander wrote to secretaries of state a week after this year’s Budget, he made it clear he wanted them to model cuts of 10% - larger than the 8% or £11.5bn, set out in the Budget itself.
The actual reductions may not be so severe. However, even an 8% cut for local government in 2015-16 would be deemed “unsustainable”, to quote the LGA’s stock phrase. Models by the Institute for Fiscal Studies suggest this would make the cumulative impact on councils between 2010-11 and 2015-16 a whopping cut of 33%.
The last two fiscal events, Budget 2013 and the Autumn Statement 2012, have let local government off reduction requirements made of other departments - although this was only for 2013-14 reductions and did not extend to 2014-15.
Another source of comfort can be found in the small print of the Office for Budget Responsibility’s economic and fiscal outlook published alongside last month’s Budget. This shows a tiny reduction of 0.6% in the 2015-16 departmental expenditure limit for local government. It also shows increasing income from both retained business rates and council tax (see graphs below).
However, the OBR forecast is far less reassuring post 2015-16, with grant reductions of 3.3% in 2016-17 and 3.8% the year after. The June spending round relates to 2015-16, but it may be the period after this that local government should be more worried about.
The idea that local government can continue on the “same trajectory” as this spending review in the long term seems not only unsustainable but impossible. Applied to another comprehensive spending review period, that trajectory becomes 66% over eight years.
As Hugh Grover, London Councils’ head of fair funding, argues: “I am just not sure, even with radical and revolutionary service redesign, how you run local government on a third of funding.”
Such a cut moves beyond ‘doing things differently’, to simply not doing things: not running libraries, not fixing roads and not cleaning the streets.
However, local government is making the case for radical and revolutionary service redesign, in particular through the devolution and joint working of community budgets, local growth deals and city deals. But there is unlikely to be much progress on these within the spending round: some warm words on community budgets and a disappointingly small single pot of funding at best.
The trouble is that Treasury ministers and officials may support these initiatives, but other departments must play ball.
“I am not sure the Treasury even has the power to dictate to other departments about how they behave to local government,” says Mr Grover. The LGA is currently working up a ‘new model’ for local government, but Mr Grover suggests “it is a new model for Whitehall that is needed”.
There is, however, the inevitable post-election spending ‘review’ to consider, and Birmingham City Council chief executive Stephen Hughes says this will be “a much more interesting beast”.
Potentially it could rethink protection of schools, health, and universal pensioner benefits, aiding local government’s funding trajectory. It could also build on small beginnings for single pot and community budget devolution.
“You cannot expect a revolution,” says Mr Hughes.
“It is going to be slow, over time. If you go back there has been some change in approach and things are moving in local government’s direction. It just takes longer than everyone wants.”
The question is whether Whitehall can move fast enough to keep pace with the scale of the cuts. That will depend not only on Whitehall but on the economy and associated progress on deficit reduction. But one thing is clear, the government certainly has to move faster than at present if potholes, shabby streets and closed libraries aren’t to become the norm.