Spending Review 2013: the wolf comes a step closer to the local government door

Paul Dossett is head of the pubic sector assurance practice for consultancy Grant Thornton

The scale of the reduction of local government resource in yesterday’s Spending Review was broadly in line with expectations. It was interesting that the Chancellor gave specific credit to the Secretary of State for DCLG and the leader of the Local Government Association and therefore by association the local government sector for its capacity to deliver the scale of savings that have been achieved so far. It was him saying: “you have been so good at delivering savings so far, you can deliver some more”.

One of the things that differentiates local government from the rest of the public sector is that authorities perhaps have more creativity in their thinking. In local government there is a rich mix of member-led thinking (which you don’t get in other public bodies, and which often comes from the bottom up in terms of what their constituents are saying) added to creative thinking from senior officers resulting in  some dynamic and sustainable solutions. I think that is why local authorities have been able to deliver the savings they have so far.

One of the important things that the Chancellor recognised yesterday was the work between local government and the health service, which has not always been as good as it could be. Three billion is to be transferred from the NHS budget to social care, but we will have to see how it translates: is it £3bn over a period of time? Is it new money or is there some recycling involved?

We’ll have to see, but I think it is a positive affirmation of local authorities working as commissioners with health colleagues to address what is an absolutely crucial issue for the country. The Chancellor pointed out that both in terms of quality and finance it doesn’t always hit the mark. The current disjointed approach will hopefully improve as a result.

The infrastructure funding announced for 2015-16 will benefit local communities in areas such as housing and transport. What is unclear is how far local authorities will be involved and will they have a democratic mandate for those projects? Central government hasn’t necessarily always engaged effectively with local authorities on major infrastructure initiatives, so we will have to wait and see.

Clearly some of the welfare reform changes, some of which have already happened and some of which are trailed going forward, will impact on local government. It is the local authority that ends up picking up the pieces in virtually all cases: people end up at the local authority front door.

Housing development is a really crucial issue for local authorities because at the moment we are in this really difficult position where homeless numbers – particularly in the South East – are creeping up. Rent is rising, welfare changes came in on April 1 so it is a bit early to assess the impact there, but when we talk to authorities in London and they tell us rent has risen astronomically (sometimes by up to 30% in the last two years) and that has driven some people into homelessness.

Many councils I talk to say that 2014-15 looks like a challenging year. The unknown is what 2015-16 will look like. When the 28% cuts were announced in 2010 there was outcry from the sector and the government’s response was: “well hang on, you have got an awful lot of reserves, you’re crying wolf”.

What I would say now is that the wolf has come slower to the door than those initial forecasts from the sector, but he is inexorably getting closer. In 2015-16 it is likely that we will see some local authorities with severe financial challenges. It won’t be all of them, and it may not even be a majority of them, but there will be some with a serious call on reserves, with serious operational challenges and who will really struggle to deliver. There are some councils who are very small and it seems that the government has decided against local government reorganisation. As we know, shared services can go some of the way to provide a solution, but I doubt it will be the silver bullet.

The councils that don’t have strong economic activity creating revenue are going to be in a very difficult position. One of the things that has struck me is that, for example, in Liverpool they are saying that a reduction in public spending in the city will take half a billion pounds out of the economy. There are examples of this all over the country. There are so many variables, but you can see that the more councils are being pushed towards a tipping point, the more likely their financial sustainability will be threatened.

We’re seeing a feeling of resignation from councils in terms of their role in supporting the deficit reduction programme. They expected all of this, but their relationship with central government clearly has scope for improvement. There is lot of political unanimity on this. We speak to Labour, Liberal Democrat and Conservative controlled councils and they all have a shared view: they are carrying too much of the responsibility when compared to other parts of the public sector.