Written evidence submitted by the Local
Government Association
BACKGROUND
Local government faces some of the sharpest
spending cuts in the public sector. Councils will look at ways
of delivering services more efficiently, and the sector led national
productivity programme is designed to help in this area, but the
scale and speed of spending reductions means front-line services
will be substantially affected.
The spending review sets out real terms reductions
of 28% in local authority budgets over the next four years. This
compares with overall cuts of 8.3% across all departmental budgets.
Moreover local authority funding reductions
are "front loaded" falling from £28.5 billion in
2010-11 to:
— £26.1 billion in 2011-12
— £24.4 billion in 2012-13
— £24.2 billion in 2013-14
— £22.9 billion in 2014-15
For England as a whole, our expectation before
the Spending Review, based on a £20 billion funding gap by
2014-15 (an outline of the pressures councils face is included
as an appendix), was that in the first year the gap to be bridged
would be around £4.5 billion.
The LGA analysis of the settlement as announced
is that the first year gap is around £6.5 billion. There
is a real risk that to be able to cut their budgets by this much
this quickly, local authorities will have no choice but to take
decisions that would have an adverse impact on local services
and not provide value for money.
NOT ALL
INFORMATION IS
YET AVAILABLE
Whilst the spending review set out general direction,
individual Councils do not yet know what their actual level of
funding will be in the next financial year, which can vary substantially
from the average figures quoted. More information should be available
in early December. It is extremely important that councils have
the earliest and greatest clarity about their financial position
to be able to plan to deliver these challenging budgets.
A large part of this clarity will come from
the "ceilings and floors" which will determine the minimum
and maximum reductions of grant for councils.
After December Councils will only have around
eight working weeks to draw up unprecedented spending reductions.
They will need to consult with businesses, users, taxpayers and
affected staff prior to formally agreeing these far-reaching choices.
The timetable for doing so is incredibly tight.
FRONT LOADING
The front loading of spending reductions means
councils have to cut spending more quickly than most other parts
of the public sector. Whilst local government has a track record
of managing their budgets, spending reductions on this pace and
scale are unprecedented and will pose particular challenges.
Much of local government's spend is committed
well in advance. This includes:
— Long-term contracts with private businesses,
for services such as refuse collection and disposal, or back-office
systems such as housing benefit and council tax collection. Proper
renegotiation of these contracts takes time.
— Payments on debts for buildings and other
infrastructure, including payments through PFI arrangements on
long contracts.
— Grants to voluntary organisations. Whilst
these grants can be reduced at short notice—it shifts the
burden onto community organisations that will in turn need to
make rapid spending reductions.
Local government's aim is to reduce spending
in as efficient a way as possible. The largest single source of
spending is on staff. Here costs can be more economically reduced,
and key skills retained, if done in a planned way.
The front loading of the general settlement
makes each of these approaches much more challenging. However
there is flexibility in withdrawal of specific grants, and the
LGA calls for these to be withdrawn more slowly—to allow
councils to deliver spending reductions as efficiently as possible.
INDIVIDUAL RING-FENCED
GRANTS
Local government has long called for the end
of ring-fencing of individual grants as we believe local communities
are better placed to decide on how to prioritise local resources
and value for money. The government has recognised this in the
spending review and has announced a substantial end to ring-fencing
and the LGA welcomes this development.
That said, some of the largest grants—such
as the dedicated schools grant—remain ring-fenced.
OTHER GRANT
FUNDING
At the time of writing, the future of £1
billion in funding that had previously been in Area Based Grant
has still to be clarified. The majority of these are in the area
of children's services (approximately £874 million).
Changes to these grants could have an enormous
impact on individual councils' financial positions. In the case
of the £450 million Working Neighbourhoods Fund, which the
government has said will not be continued after 2010-11, a number
of authorities face the immediate loss of grant of more than £10
million in 2011-12, resulting in larger first year reductions
in spending being required. For example, if one large authority
receives the average reduction of 10.7% in its Formula Grant for
the first year of reductions, the ending of the Working Neighbourhoods
Fund will then increase possible reductions in that council's
expenditure to 17.6% in 2011-12.
FORMULA GRANT
At present business rates are collected and,
together with Revenue Support Grant, make up what is called "formula
grant". CLG have set out a list of individual grants which
are to be added to formula grant.
The LGA has highlighted that, by 2014-15 having
taken account of these grants added in, and after making prudent
assumptions of business growth of 0.5%/0.7%/0.7%/0.7% in the years
2010-11 through till 2014-15, there appears to be a £2 billion
gap in funding available to local government.
This area of the spending review is unclear
and clarity is needed.
PLACE BASED/COMMUNITY
BUDGETS
The LGA is pleased that the government has taken
on board its place-based budgets proposal and is going to implement
a version of it. The first community budgets already involve nearly
a fifth of all upper-tier councils.
The more areas that can adopt this model quickly,
the more needless cost and bureaucracy can be taken out and the
more money will be saved for the front line. We believe this model
of accountability will help deliver better services cheaper—by
moving spending to prevention. At the same time it should allow
a better focus on the needs of communities and individual service
users.
A genuinely localist approach will allow organisations
in the local area to pool budgets for whatever purpose they choose
so as to provide the best services for local people and the most
efficient use of public money.
The LGA seeks clarification that this programme
will be rolled out to other local authorities by 2013.
PWLB INTEREST
At the same time the spending review was announced,
the terms of the Public Works Loans Board, were changed. Councils
now pay a higher rate of interest on loans they take out from
this source than other parts of government.
Councils have been prudent in this area. Since
2004 accumulated "prudential" represents just 4.35%
of local authority assets.
This change has real consequences, money that
might have been spent on rebuilding roads and other infrastructure
will be spent on servicing interest on loans between tiers of
government.
HOUSING FINANCE
The commitment to end the system of housing
subsidy, in which tenants in effect pay some of their rent to
central government, is very welcome. The detail of this is still
to be announced, including the amount that local government will
need to pay to buy itself out of the existing system. For example,
the Spending Review confirmed that the Government will provide
£2 billion funding for Decent Homes, whereas CLG's own research
noted that the backlog for bringing existing homes up to the Decent
Homes standard is already in the region of £6 billion.
It was anticipated that housing finance reform
based on localism would see 100% of receipts from the sale of
properties under the "Right to Buy" scheme returned
to councils. The Spending Review states that HM Treasury will
continue to take 75% of the sales receipts.
Therefore, early clarity of the reform of housing
finance will be welcomed.
BUSINESS RATES
The announcement to consult on ways of enabling
councils to retain locally-raised business rates is very welcome,
and has been a longstanding call of the local government sector.
As a responsible part of government, with good links to the business
sector, councils will look forward to working with that community
in deciding priorities and the level of funding needed to achieve
those objectives.
SCHOOLS CAPITAL
Suggestions have been made in Children and
Young People Now (2nd November 2010) that the £15.8 billion
announced in the Spending Review for a four-year capital programme
by the Department for Education covers the 600 schools or academy
projects previously approved under the Building Schools for the
Future programme which covered secondary schools.
In our submission to the James Review on Education
Capital by the Department for Education the LGA estimated that
the total increase in essential capital costs (for fulfilling
statutory duties such as sufficiency of school places or health
and safety) for the primary sector was £6.98 billion over
the Spending Review period.
We seek clarification over how the £15.8
billion announced in the Spending Review for schools capital will
be allocated.
NON-SCHOOLS
BASED CHILDREN'S
SERVICES
The main formula grant, which provides the bulk
of funding for non-school based children's services, will fall,
on a like for like basis, by 28% in real terms over the course
of the Spending Review. In the first year there will be a cash
reduction of 10.7% for all authorities. However, we do not yet
know the size of the new Early Intervention Grant. We seek clarification
over the size of this grant and how it will be allocated.
ADULT SOCIAL
CARE FUNDING
The additional £2 billion for adult social
care is welcomed by councils. However, the LGA estimates that
the rise in annual costs of adult social care could be in the
region of £6 billion by 2014-15. The Commission on Funding
of Care and Support must address how much more money can be brought
into the adult social care system to address this shortfall.
Whilst £1 billion of this additional funding
will be allocated to councils, the LGA seeks clarification over
how and to whom the remaining £1 billion will be allocated.
November 2010
APPENDIX A
THE PRESSURES FACED BY COUNCILS AND PUBLIC
SERVICES
— The cost of adult social care, where
local authorities currently spend £14.4 billion per annum,
could rise to £20 billion by 2015. The principal driver is
demographic change, accounting for potential cost increases of
4% year on year.
— The transfer of public health responsibilities
to local government is welcomed, but the proposed ring-fencing
of the budget would perpetuate patterns of spending that see 96%
spent on treating illness and less than 4% spent on keeping people
well.
— The numbers of school age pupils are
forecast to rise by almost 3% by 2014, creating pressures on school
places that are already acutely felt in the primary sector.
— There is also a pressing need for capital
investment in schools. Recent analysis by the LGA and Association
of Directors of Children's Services shows that £15 billion
is the absolute minimum councils need between now and 2015 to
meet statutory requirements, such as to provide school places
and maintain health and safety.
— Following the Baby P case, child protection
costs, including the costs of looking after children in care,
are rising sharply, with a 10% increase from the previous level
of £2.2 billion very likely to be sustained into the future.
— The clarification in a recent court case
of local authorities' responsibilities to provide housing for
lone homeless 16 and 17 year olds will lead to ongoing extra costs
of £160 million per annum.
— Taken together, these and other pressures
are likely to lift the total cost of childrens' services by at
least £5 billion over the next four years, even if pay and
related costs can be constrained at levels significantly below
general inflation.
— Waste collection and disposal together
are the third largest local government services in terms of spend
after education and social care. Costs, excluding capital investment,
are likely to increase from £3.4 billion in 2010-11 to £4.3
billion by 2014-15.
— Waste disposal costs have risen very
steeply, driven by a six-fold increase in landfill tax over 12
years and with a £140 million EU fine in prospect if completion
of waste management projects is delayed.
— In this area, both investment in the
new facilities needed and renegotiation of contracts for waste
disposal have long lead times, meaning there are few quick wins
in reducing costs.
— Flooding is now recognized as a key hazard
facing this country. From April 2011, local authorities take on
new responsibilities for which it is expected there will be a
large but uncertain cost. Without adequate investment, there is
considerable risk to the arrangements agreed with the insurance
industry on the availability of appropriate insurance cover.
— The recession had a significant impact
on local authority finances, for example with investment income
falling by £1.5 billion. Despite this, local authorities
moved rapidly to put in place and implement substantial programmes
of action to counter the effects of the recession in their areas.
— Public sector retrenchment will have
further impacts on local economies. While the recognition of local
authorities' lead role in economic development in the proposal
to create Local Enterprise Partnerships (LEPs) is welcome, LEPs
need to be resourced properly. At present their only confirmed
source of funding is the £1 billion Regional Growth Fund,
which falls far short of the funding that had been allocated to
Regional Development Agencies.
— More widely, the scale of investment
required to meet the country's infrastructure needs has been credibly
estimated to be at least £500 billion by 2020, or an investment
of £50 billion per year for the next decade, far beyond what
can currently be afforded.
— Local government currently spends £1.1
billion on providing concessionary travel schemes, and a further
£2.6 billion on support to travel operators. Research commissioned
by the LGA on projections of expenditure on concessionary travel
in England from 2008-09 to 2013-14 suggests that reimbursement
costs could increase by 20% in real terms over this period. In
addition, demographic pressures will add to costs.
— Crime and anti-social behaviour are already
high profile public issues, and the 2012 Olympic and Paralympic
Games will add to security pressures. With pay and related overheads
accounting for most spending in policing, it will be difficult
to make significant savings without reducing police numbers.
— Added to this, tighter budgets may mean
that councils will find it a challenge to continue to provide
the discretionary services that reduce crime and anti-social behaviour
such as provision of street lighting, alley gating and street
wardens or PCSOs.
— As with police, the majority of fire
service spending is on the workforce, so savings would largely
be achieved through staff reductions.
— Although local government has managed
the pay bill more effectively than the rest of the public sector,
equal pay and pensions liabilities remain significant pressures.
The eventual cost to local authorities of equal pay settlements
could be up to £4 billion, some of which could be realised
over the period to 2014-15. On pensions, increasing life expectancy
and difficult stock market conditions over the last decade are
likely to lead to significant increases in contribution rates
over the next few years, and reforms that might make future costs
more affordable are unlikely to take away that pressure.
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