Budget reaction: Many questions still unanswered
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George Osborne
It would seem on first reading that, as far as local government is concerned, the Budget has not made things significantly worse. At least, no further direct cuts in local government expenditure were announced. There are, however, a number of big issues that affect local authorities and the wider public sector.
The Chancellor still intends to eliminate the deficit over the next four years and be running a surplus, there will be an extra £3.5bn of savings from departmental spending in 2019-20. This will result from a departmental efficiency review. There will also be increases in the employer’s contributions to the unfunded public sector pension funds.
The overall financial positions shows forecast growth of 2.0% in 2016, 2.2% in 2017 and 2.1% for the rest of the forecast period. This is less than recently forecast but is consistent with a world recession.
CPI will return to 2% by 2018. Public sector finances will deliver a surplus in 2019-20 and 2020-21. Total managed expenditure will have fallen to 36.9% of GDP by 2020-2021.
All schools will become academies by 2020 or have an order in place to convert by 2022. This will, of course, mark the end of local authority involvement in the sector but will remove all schools from business rates.
There will be additional investment in the central funding for homelessness. This is in two parts, a £100m investment in “second stage” accommodation and £10m over two years to support and scale-up ways to prevent and reduce rough sleeping, particularly in London.
There is a considerable portion of the Budget statement on business rates. This is probably as interesting for what it doesn’t say as what it does.
The burden on business ratepayers is to be cut by £6.7bn over the next five years. This relief takes two forms. The Small Business Rate Relief is to be permanently doubled. Properties with rateable values of under £12,000 will pay nothing and tapered relief will apply up to £15,000. In addition, the threshold for the standard business rates multiplier will rise to £51,000 taking 250,000 smaller properties out of the higher rate.
From 2020, as expected, the annual indexation of business rates moves to the Consumer Price index from the Retail Price Index..
There will be more frequent revaluations – at least every three years – and there will be an immediate discussion paper on support for businesses and stability for local authorities.
By 2022 there will be harmonisation of of local authority business rate systems with the HMRC digital tax accounts.
These are in addition to the Autumn Statement proposals for devolution, elected mayors etc.
There will be considerable extra investment in flood defences but this is to be funded from an increase in Insurance Premium Tax by 0.5% .
Additional devolution deals are announced, particularly East Anglia, Greater Lincolnshire and the West of England with additional devolution for Manchester and Liverpool.
There will be pilots to the approach to 100% business rate devolution in Greater Manchester and Liverpool City Regions and an increase of the share of business rates in London. This is an interesting development, but whether this will be to the detriment of funding elsewhere remains to be seen.
A change in approach to off-payroll employment in the public sector is signalled.
There was a considerable list of new capital infrastructure schemes, but as these take so long to plan the actual effects of these will not be apparent for a long while.
I cannot find the discussion paper on business rates which is key for many authorities and when that is published we will see the plans for equalisation, plus other measures, through to 2020. There are currently no details on the business rate devolvement to Manchester, Liverpool and London.
It is to be noted that the Business Rate “pot” is diminished by the changes to schools, small business relief and CPI.
The moves by the Local Government Association to get additional funding for the Better Care Fund accelerated were not mentioned.
In conclusion, it would seem that the effects for local authorities have not worsened but there are still many question marks going forward.
If there is a world recession growth may not meet the modest targets in this budget, devolution and business rates remain to be resolved and there was no hint of further help to adult social care or children’s services.
Richard Harbord is a consultant and former chief executive of Boston Borough Council.
