Guy Ware: Stockholm Syndrome and the Spending Review
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Guy Ware
The lobbying, the leaking and the pre-announcements are over. Devilling in the detail has begun. Rising tax revenues and lower interest rates allowed the chancellor to pull back from the brink – no tax credit cuts at all, no new cuts to police. Only one Departmental Expenditure Limit cut above the mooted 40% mark. Guess which one? The local government DEL, which will be cut by 56% in real terms.
Which sounds catastrophic. But what does it mean?
Three things
The good news is, it doesn’t actually mean council budgets will be cut by another 56%. That’s for three reasons.
The first is that the business rates retained by councils are not now included in the DEL. This income will rise while the DEL falls. At London Councils we estimate the combined effect will be to reduce councils’ core funding (Settlement Funding Assessment) by 24% in real terms.
The second is that councils also get to raise Council Tax – of which more later. The third is that, once again, changes in what’s counted make comparisons slippery. The government isn’t actually using the term “spending power” this time, but when they say the cut is only 1.7%, you know what they mean.
The bad news is that 24% cuts – on top of the 44% imposed over the last five years – are going to be grim. Maybe not as grim as we’d been expecting, but still undeniably grim. For treasurers to feel relief would be understandable, but only as a chronic form of Stockholm syndrome.
Shiny infrastructure
In London, while funding plummets, the population grows apace. As a result, the boroughs now face a collective budget gap of at least £2.7bn per annum by 2020.
What does £2.7bn look like? It’s more than they currently spend on everything apart from education, social care and public health.
So, they could stop collecting rubbish and sweeping the streets, close all the libraries, parks and leisure centres, stop housing the homeless, sack the entire “back office” and still have to cut care for people with mental health problems or physical disabilities to balance the books. They won’t, of course, but what they will be forced to do won’t be pretty.
The government will invest in shiny infrastructure projects – but there’ll be no money to maintain decent public space around them.
The NHS gets its £10bn, but many of the services that keep people healthy and sane – and define our quality of life – will disappear. The shift from acute care to prevention – on which both health and local government have pretty much bet the farm – will be harder to deliver.
There’s more money for housing, which is undoubtedly good news. But how many of those 400,000 “affordable” homes can be built in London at a price that is genuinely affordable? (A “starter” home for £450,000 anybody? A “London Help-to-Buy” to push prices further up?)
Meanwhile, the government’s high value asset-stripping of councils’ housing stock, and the cut in social rents (which will cost London boroughs £800m by 2020) make the provision of affordable housing for rent almost impossible.
On the subject of housing, look out for the consultation on New Homes Bonus. Apparently this will simultaneously sharpen incentives, reduce the payment period from six years to four and save £800m to “be used for social care”. Quite a trick if they can pull it off.
Councils can use (non-right-to-buy) asset receipts to meet revenue costs of reform. Which is a good idea, albeit not one that’s going to change the world. Plus they can trim directors’ salaries and squander their reserves. So that’s all right, then.
Not to worry. There’s always council tax. In London the newly-permitted 2% “social care precept” would raise £55m a year. The gap in adult social care will be £900m by 2020.
Big Rock Candy Mountain
So, while the money wouldn’t hurt, it won’t solve the problem. In the meantime, we’ve slipped into a world where local council tax can be hypothecated by the chancellor. And it’s sold as “increased devolution”.
Which brings us to 2020, and 100% business rate retention. There’s limited news about the additional responsibilities to come with it, which means there’s much to play for.
There’s also much work needed before a tax on business property can realistically both reward economic growth and fund the future of population-driven services. And if you think the Government will allow rate income to keep rising by RPI once it’s in councils’ control… you clearly haven’t been paying attention.
So, then: some sparkly pre-Christmas baubles, a distant glimpse of the Big Rock Candy Mountain, and, for now, more brutal cuts. Or as Tom Waits might put it: “Today’s grey skies, tomorrow is tears. You’ll have to wait till yesterday is here.”
Guy Ware is interim director of finance and procurement, London Councils.
