Written evidence submitted by the New
Local Government Network (NLGN)
ABOUT NLGN
NLGN is an independent think tank committed
to promoting the decentralisation of power, public service reform,
enhancing local governance and empowering communities. Through
expert research and our diverse networks we seek to influence
the political and policy agenda.
1. The manner in which the Spending Review was
conducted and, in particular, the decision-making process
The spending review was carried out in a traditional
robust fashion characterised by strong conversations between spending
departments themselves, and between spending departments and the
Treasury. It has to be questioned whether this approach creates
the right balance between a healthy dialogue within government
and effective decision making.
In short, the settlement was undermined by a
lack of spatial awareness. It also failed to consider fully, in-the-round,
the purposes to which public money could be put most effectively.
Research into area-based budgeting over recent years has demonstrated
the scope to achieve major reductions in public spending whilst
retaining or improving service outcomes. Savings have been estimated
at over 10% in worklessness and nearer 20% in health services
when decisions are devolved to the correct level. It is doubly
unfortunate that, when the Government's main purpose was to achieve
its ambitions for deficit reduction, one of the most persuasive
mechanisms for achieving this was effectively ruled out by the
approach taken. The commitment to 16 Community budgets for family-related
services, though welcome in its own right, represents a poor return
on the work that local areas have engaged with and a missed opportunity
to maximise taxpayers' investment in public services.
A more positive dynamic would have been for
the Treasury (on behalf of all departmental spending) to have
engaged in a similarly forceful negotiation process with local
areas to define a settlement across departmental boundaries for
localities. This could have included the outcomes that national
and local politicians wished to see achieved and the resources
that could be applied to these goals.
Serious consideration should be given as to
how future spending reviews can be approached in a more sophisticated
fashion.
For a Government committed to localism, the
spending review indicated a surprising reluctance to question
the vested interests and supremacy of Whitehall fiefdoms. Questions
have to be posed as to how the process of the spending review
facilitated or impeded the agenda of decentralisation and localism
to which the Government is committed.
2. The decision to ring-fence and partially ring-fence
particular areas of public spending
Protection of specific parts of public spending and
its impact
The Government's decision to ring-fence and
partially ring-fence budgets across the public sector has undermined
the equity of the spending review.
The question is not whether any parts of public
spending should be prioritised, but the method by which this has
been done.
The impact of the protection of specific domestic
budgets has been that local government has had to shoulder the
largest budget reductions after the Treasury (not itself responsible
for frontline service delivery) and Defra. NLGN's analysis in
summer 2010 demonstrated that by protecting major spending departments
such as the Department of Health, budget cuts were being past
onto other departments.
NLGN questions the basis for this decision.
Local government has proved the sector of government most ready
and able to make efficiencies in recent years, over-achieving
on the targets set out in the 2004 Gershon efficiency programme.
Conversely, the NHS has seen productivity fall by 3.3% between
1995 and 2008 (according to estimates from the Office for National
Statistics) and yet has remained relatively immune from budget
reductions.[7]
The demographic and lifestyle changes that are pushing up costs
for the NHS are not exclusive to the health service; in fact,
as the Government has acknowledged, local authorities face major
demand pressures in adult care. Costs of adult social care alone
are estimated to rise by £6 billion by 2014-15 (dwarfing
the additional £2 billion allocated to it). Since 1997, while
health services have seen increased investment of 90%, funding
for non-schools local authority services have risen by only 14%.[8]
Councils also face significant demand and cost
pressures in children's care, waste disposal, environmental taxation,
equalisation of pay and workforce pensions.
WHITEHALL REFORM
Neither is it clear how the protection of specific
budgets links to the Government's decentralisation agenda. The
spending review offered an opportunity to initiate major inroads
into public service reform and necessary changes in Whitehall.
A smaller Whitehall will have a very different role to play in
interacting with local areas, different elements of the public
sector, communities and citizens in the future. It is important
that the Government engages with this agenda quickly to develop
a more strategic and facilitative central government that can
provide the framework for local policy responses.
At the broadest level, therefore, the Spending
Review was an opportunity lost. With the imperative to cut budgets
sharply and decisively whilst enjoying the political capital of
a new administration, the Government was uniquely positioned to
take on historic vested interests and drive a localist response
to the cuts which would have resulted in a more responsible and
less severe impact on public services.
The danger is that the ring-fencing and protection
of specific parts of public spending may actually reinforce the
silo-mentality within Whitehall departments and departmental agencies.
It may also increase the isolationism of central government departments.
Such ring-fencing may also undermine efforts to link up approaches
and pool budgets across traditional service divides, such as in
health and social care.
REDUCTION OF
RING-FENCING
IN LOCAL
GOVERNMENT
NLGN welcomes the Government's move to reduce
ring-fencing and the commitment to abolish the restrictions applying
to 80 of the 90 ring-fenced grants for local authorities. This
is a move that NLGN has been recommending for a number of years.
As research by NLGN and others has shown, discretion over spend
is fundamental to coherent, joined-up, citizen focused state activity.[9]
However, NLGN is concerned that there may be
unforeseen consequences of decisions on ring-fencing and de-ring-fencing
budgets. NLGN's research indicated that, because of the nature
of the specific grants, the in-year cuts for 2010-11 fell disproportionately
on more deprived areas. More deprived areas are likely to be hit
harder by cuts to grant because funding is distributed, in part,
on a needs-resource basis or targeted towards problems associated
with high deprivation.
NLGN's analysis has also shown that through
the process of removing specific grants and ring-fencing there
may be consequences for more deprived areas. This dynamic has
already played out after the in-year cuts announced in the Chancellor's
Emergency Budget: the 10 local authority areas that faced the
maximum 2% in-year cuts for 2010-11 were all in the top quartile
of areas in the country in terms of multiple deprivation.
Figure 1
INDICES OF SOCIAL DEPRIVATION SCORES FOR
LOCAL AUTHORITY AREAS CORRELATED WITH PERCENTAGE CUTS TO THEIR
IN-YEAR REVENUE GRANTS FOR 2010-11[10]
Many specific grants are targeted at more deprived
areas and removing these ringfenced grants or transferring them
into formula grant could have a distributional impact that means
poorer areas will loose out. Care must therefore be taken in reconsidering
these grants and providing additional freedoms to local areas.
If this money is simply put into formula grant then it may disproportionately
disadvantage those areas most in need.
3. The impact of the Spending Review on the long-term
growth potential of the UK economy.
Local areas are becoming increasingly responsible
for driving economic growth. As the Government has admitted elsewhere,
different interventions are likely to be necessary in different
localities.[11]
The significant budgets reductions will make it crucial for local
authorities to be given the tools to revitalise and re-balance
their economies. NLGN is therefore concerned that councils and
local businesses will have little strategic input into skills
or worklessness commissioning.
NLGN welcomes the additional funding put aside
through the Regional Growth Fund. It will be key to ensure that
the criteria for allocating this money are not defined narrowly.
NLGN also welcomes the Government's commitment
to Tax Increment Financing, which should present a significant
addition to the armoury of local authorities as they re-energise
their local economies and plan for growth.
However, as the Treasury admitted, the announcement
that the rate of borrowing from the Public Works Loans Board is
set to increase is likely to result in reduced infrastructure
investment generated locally. Set alongside the significant reduction
in capital grant, it means that urgent action is needed to develop
alternative capital financing mechanisms to support economic infrastructure
across the country. NLGN is keen to explore in more depth opportunities
to access money from local government pensions schemes and the
municipal bond market. It is imperative that these solutions are
facilitated as quickly as possible.
November 2010
7 Kings Fund, Improving NHS productivity More with
the same not more of the same (2010). Back
8
LGA Briefing on the Comprehensive Spending Review, October 2010;
LGA, Spending Review 2010 Local Government Group submission
(2010). Back
9
Nigel Keohane and Geraldine Smith, Greater than the sum of
its parts (NLGN, 2010). Back
10
Nick Hope et al, Scanning Financial Horizons (NLGN, 2010). Back
11
BIS, Local growth: realising every place's potential (2010). Back
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