Local government will be in uncharted water by 2020
Our research for the Association for Public Service Excellence (APSE) charts how local government finance is changing dramatically, and the consequences for local areas.*
With a little sleight of hand, politicians and commentators can get away with a great deal when talking about local government. On the one hand, local government is supposed to be teetering on the edge of a funding crisis that could spell an end to many services, or result in their procurement by private, profit-seeking firms. On the other, the Chancellor has promised that local government spending will be the same in 2020 as it is now.
What explains the divergence between these two narratives? For one thing, core spending power is falling in cash terms in 2016/17, recovering by 2019/20. Meanwhile, the overall fall in real terms over this period as calculated by the government will be 6.7%.
The other problem is that when we talk about local government, we need to look at both what’s happening at the aggregate and at the level of individual councils and the range of services they are responsible for – this includes local authority run education, social care, transport provision, strategic planning, and a host of services that make local areas liveable, namely parks, leisure facilities, street lighting, road repairs, waste and recycling, and environmental health.
As the graph above shows, local government is entering uncharted water. Looking forward, the recent fall in current spending as a share of GDP is set to continue (albeit from an artificially high point due to the recession). By 2020, combined current and capital spending as a share of the economy will reach its lowest point since 1948.
But this is only half the picture: there are other changes with consequences for areas and specific services. The Chancellor announced two major changes in his Autumn Statement. First, councils have been given the power to raise council tax by an additional 2% each year to meet rising demand for social care – the ‘social care precept’. In April this year, 144 of the 152 English local authorities responsible for social care used this precept. Second, councils were granted full retention of business rates.
These changes are both designed to plug the gap in finances left by reductions in the central government grant to local government – set to decline by 53% to £5.4 billion between now and 2020 – and, in the name of localism, to grant councils greater freedom and control. If the social care precept is used, and council tax rises by 4% per year, then local government core spending power will be similar in cash terms in 2020 to what it is now. However, this masks a number of other effects, both at the level of individual councils and the services they can afford to run.
The disappearance of the revenue support grant marks a final departure from the system of redistribution to one where risk and responsibility is devolved to local areas. The graph above shows what it means for different types of councils, with baseline funding an estimate of what will come from business rates. Across all council types, more than half of local government spending power by 2020 will be provided by council tax – 75% in the case of shire counties.
Over 80% of funding will be generated locally across all council types – 94% in the case of shire counties. This is significant because the capacity to raise revenues via council tax and business rates is uneven and does not provide a general answer to the problem of variations in levels of local deprivation. Some areas will do well, others will not. Without an equalisation mechanism on the basis of where resources are needed, residents will lose out badly.
In addition, while core spending power is not set to decline significantly if the social care precept is used consistently from now until 2020, the financial squeeze on liveability and public realm services – those outside social care and whose funding is not ring-fenced like education – could still be 20%. In some areas, cuts to these services have already been significant and are set to continue. Councils will now have to campaign openly for liveability services.
These services can be a case of we don’t know what we’ve got until it’s gone. Potholes, pests at home and in the workplace, waste piling up and dirtier streets, the deterioration of grass football pitches and of food hygiene standards in restaurants, cafes and pubs – this may emerge as the political terrain on which public debate scrutinises the future of local government.
*The report, Sustainable local government finance and liveable local areas: Can we survive to 2020?, will be available online via the APSE and NPI websites in June 2016.