Local government funding slashed in #SpendingReview
George Osborne made the announcements that business rates will be localised and local councils will be able to add 2 per cent to council tax to fund social care with some fanfare. Both of those are questionable decisions to say the least – more of which later.
But in a matter of a couple of seconds he skipped across the announcement that the main grant from central to local government will be phased out by the end of the parliament.
That’s a cut of more than 50 per cent in the amount of money local government receives from the centre, with some pretty heroic assumptions about the way that local income will rise to plug the gap. At the same time, more powers and responsibilities will be devolved to local authorities, including potentially public health.
It’s a huge change in the way local government is funded – the kind of thing that needs measured and careful consideration. It’s coming alongside a major shift in the way our towns, cities and local areas are governed, which unions recognise could bring opportunities as well as challenges. But it’s being driven through in less than five years.
The repercussions for local and regional inequalities could be enormous, potentially entrenching divides between north and south and more and less prosperous areas. Already struggling areas with low business activity could be left with dwindling funding. The government predicts that locally generated income, from council tax and business rates, will increase by £6.3bn over the period leaving an overall position of a real terms cut of 1.7 per cent per year. But even if this is correct the impact will vary widely, again entrenching inequality between areas.
Page 58 of the statement gives more detail. The government argues that the main grant represents less than a quarter of local government resources – but this is an average across very different localities. In some, generally poorer, areas the reliance on central funding is higher. While northern councils are likely to be the biggest losers yet again, there’s also a potential rural-urban dimension and an inner-outer London effect.
There are very real concerns about business rates localisation and the way it is likely to redistribute money from north to south and from poorer to richer areas, with council and business leaders in the north east joining forces to voice their concerns about the way the changes are being forced through, with little consideration of the distributional impact.
The statement also included the announcement that councils with responsibility for social care can raise council tax by up to 2 per cent without a referendum. While any increased funding for social care is welcome, this falls far short of the scale of funding councils need to meet even their basic statutory responsibilities. The government says that the precept will raise an additional £2bn by 2020 but the Local Government Association predict the social care funding gap will have grown to almost £8bn by this point. As the leader of Newcastle City Council explained this week, the full rise would cover less than a tenth of the gap the city’s social care services face.
As with changes to business rate retention and the phasing out of central government grant, the social care precept will exacerbate inequalities between councils. Analysis by the Local Government Chronicle shows that local authorities with high levels of council tax income could increase their social care spending by up to four times as much as more grant-reliant authorities through the precept. A 2 per cent increase on council tax would mean that Wokingham could increase their social care spending by 2.8 per cent while Wandsworth would achieve just 0.7 per cent. And, of course, those councils with local council tax income are more likely to have greater numbers of older people meeting social care threshold criteria.
Local government is about to go through a genuinely radical change, and the big risk is that gap between the winners and losers will widen in that process.