Big cuts in the spending review, but devolution plans provide solace for London

London faces pressure following 40% cuts in the spending review as it grapples with Right to Buy and a “hidden welfare state”. But, says Paul Honeyben, Greater Manchester’s devolution plan gives London councils cause for optimism.

With up to 40% cuts to non-ringfenced departments, the chancellor’s Spending Review was a preview of what is likely to come for local government which, we expect, will continue to shoulder a disproportionate share of the cuts: nothing new there.

Since the Summer Budget we’ve been crunching the numbers on what this means for local government, and the fact that a 40% cut (33% cash cut) was rather better than we’d anticipated tells its own story about the expectations across the sector.

We won’t know for sure until the finance settlement in December when, if the Government has listened, a genuine multi-year settlement will give the long term stability for councils to plan their finances with confidence over the medium term.

That stability will be needed with new and additional pressures mounting. London’s rapid population growth will sharply increase pressure on public services in the capital. The figures are stark. London will account for 60% of the national growth in adult population between 2015 and 2020.

Pressures in adult social care will continue to grow, despite the delay of the Care Act implementation, as the new National Living Wage will drive up costs in social care contracts.

Continued ring-fencing of public health will increase pressure on the remaining public health services in London, where 45% of spending on prescribed (mandatory) services compared with just 37% across the rest of England.

Housing is perhaps the biggest concern. On top of the existing need to deliver 56,000 new homes each year, the extension of Right to Buy has the potential to erode social housing stock in London, and the 1% per annum cut to social rents, announced in the Budget, could leave an estimated £800m hole in boroughs’ HRA plans by 2020.

Pressure on school places will continue, with a shortfall of 35,000 secondary school places alone by 2020, coming on top of £1bn of funding boroughs have had to find to plug the gap since 2010.

Finally, London boroughs are providing a hidden welfare state for people with “no recourse to public funds”, which costs at least an estimated £50m a year across London: another growing unfunded pressure.

Despite this, the chancellor’s announcement did provide some room for optimism. Perhaps more interesting than the headline 40% figure was the stated aim of decentralisation and devolution “the government will look at transforming the approach to local government financing and further decentralising power”.

London’s unique pressures can only be solved by changes to the way services are funded and the levels at which they are delivered. The Greater Manchester deal shows the government is finally taking this approach seriously – the Spending Review represents an opportunity for it to demonstrate how seriously.

Paul Honeyben is acting strategic lead: finance, performance & procurement, London Councils.