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’Tis the season to save money

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Two government announcements have given councils little festive cheer, offering no respite from the culture of belt tightening.

A tight financial settlement for next year, promising a 4.2% funding increase, was announced by local government minister John Healey . Meanwhile, the much-lauded pre-Budget report (PBR) gave councils little to alleviate the gloom, heralding a new round of efficiencies.

On top of the£4bn worth of efficiencies local government will have to find in this comprehensive spending review period, the PBR revealed a further£5bn worth of efficiencies will have to be made across government, inevitably impacting on town hall budgets.

Senior local government figures said they intended to rise to the challenge, but it looks increasingly likely that council tax payers will end up paying more for less.

“Local government has become the most efficient part of the public sector, but achieving more is going to be a major challenge because the elastic is near to breaking point,” said Paul Carter (Con), leader of Kent CC . “It is going to be almost impossible to keep council tax at a below-inflation level and continue to deliver front-line services.”

But the worst could still be to come with the Treasury indicating that future settlements across the public sector will be even tighter despite the Local Government Association labelling the current deal “the worst in a decade”.

The PBR suggested total government spending would grow by 1.1% in real terms from 2011-12 to 2013-14. While the Treasury has maintained these estimates are not concrete, financial experts say such projections have generally been heeded in the past.

Moreover, with ministers keen to prioritise the NHS and international development for funding increases, that leaves even less for local government.

Carl Emmerson, deputy director of the Institute of Fiscal Studies (IFS), said: “In the three years starting from April 2011, the Treasury has pencilled in numbers that are even tighter than the current settlement. If those numbers get penned in, local government is likely to get an even tighter settlement.

“Subject to capping, councils will have to decide whether savings to central government will be made in terms of cuts to services or rises to council tax.”

If the IFS’ sobering analysis rings true, local government is going to have to raise the bar in terms of innovation, regardless of its previous triumphs.

This, according to KPMG local government head Iain Hasdell, is no bad thing. “At the moment most councils look at efficiencies from a Gershon-esque perspective, making ad-hoc cuts and 4 or 5% savings year-on-year, but what is happening at the moment shows that there needs to be a business overhaul.”

Mr Hasdell said that while some councils were pushing the envelope, the sector needed a more radical approach to service provision overall.

“On the whole, the personalised adult social care agenda is moving at a glacial pace and there also needs to be drastic action to optimise back office operations,” he added.

Of course, there is always one other radical means of supposedly achieving long-term efficiency gains local government restructuring.

But, speaking to LGC last week, Mr Healey laughed off suggestions that the need for greater efficiency savings would make further rounds of reorganisation more likely. “I’m just concentrating on getting the [current round of] nine new unitaries up and running,” he said.

If council mergers are off the agenda, that puts the onus on partnerships with the private sector. One project being closely watched by those in favour of the radical shake-up approach is Essex CC’s ambitious outsourcing proposal, which the council estimates could be worth up to£5.4bn.

Essex leader Lord Hanningfield (Con) said that the council had already received bids from consortiums of interested parties and agreed that it was time to move beyond Gershon.

“The Gershon-type efficiencies tend to see us remodelling what we already have,” explained Lord Hanningfield. “But what we need to do is change and reorganise these processes. If we can make savings in the back office it means more money will be available for front-line services.”

LGC conference on efficiency - 12 March 2009

Hammersmith & Fulham LBC leader Stephen Greenhalgh (Con) echoed the view that local government still had a long way to go to optimise its resources.

But, despite having just cut council tax by another 3%, he called for a less extreme approach to achieving the ends. “There is a huge hole in the public finances, the money is simply not there so, of it comes of little surprise that the settlement is tough and rightly so.”

“There is always a chance to do things more efficiently, but I am not necessarily in favour of a big, radical change in model. By changing small things in a controlled manner we can achieve big savings.”

Cllr Greenhalgh’s concentration on incremental savings has its merits. The theory that the private sector is innately more efficient than the public sector is now open to question with several recent deals having collapsed (LGC - 13/11/08) .

Last month it emerged that the outsourcer Liberata was set to lose£60m after the Learning & Skills Council ended its contract to deliver the Education Maintenance Grant programme the latest in a string of setbacks for the outsourcer. It recently lost major outsourcing deals with both Sheffield City Council and Charnwood and Rushcliffe BCs .

Amid the gloom of last week, there were a couple of chinks of light. Firstly, the government’s rule change to allow local authorities to avoid having to make provisions for potential losses from Icelandic banks when preparing next year’s budgets was widely welcomed.

The LGA also backed the government’s announcement that ring-fencing will be removed from the£1.7bn Supporting People programme , which represents the largest single grant to councils.

While the former gave councils embroiled in the Icelandic banking disaster a bit of breathing space and the latter gave all authorities more flexibility over how cash is used, these two announcements are small beer compared to councils’ overall financial woe. They face a settlement that has not been altered to compensate for the seismic shift in the state of the economy.

The government has been making good use of the now well-worn line that “exceptional times need exceptional measures” in recent months. If local government is to effectively weather the coming months, councils may need to invoke some exceptional measures themselves.

One thing remains clear, the savings being made at the moment are not enough and with future finances looking even tighter, it is not going to get any easier.

LGC conference on efficiency - 12 March 2009

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