Richard Harbord: Spending Review makes the viability of councils a talking point
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“The only function of economic forecasting is to make astrology look respectable “ J K Galbraith.
A very strange and unusual Spending Review in many ways. The chancellor had been expected to continue the policy of austerity. In fact, many organisations did well in the spending review. That includes defence, museums and the arts, NHS (relatively), the police (again relatively).
Sadly, those who did not do well include various government departments and local authorities.
The Office for Budget Responsibility, which I think is a very successful innovation, had reported that because of increased tax receipts and lower borrowing costs the public finances were some £27bn better than in the summer.
The spending review is a somewhat surreal occasion. The chancellor spoke for an hour, the detail is in the 160 pages published plus the similar OBR report and then there are various papers issued giving greater detail. It does therefore take a time to find out what is in the detail. It is also a review of policy for the years to 2019/20 and therefore what you see now may not actually happen as the economic position changes.
One of the supplementary papers for instance was the criteria for Collective Investment Vehicles for the Local Government Pension Scheme which did not seem to get much of a mention and is on the DCLG web site. This will produce £400-660m savings in investment management fees over perhaps a slightly longer timescale.
In the case of departmental savings local authorities will clearly be effected by Education, DWP and DCLG.
In Education the chancellor said in his speech that the planned increase in free schools and academies meant the end of local authority involvement in Education with resultant savings.
DWP will spend 22% less on administration. There was little detail except that job centres would re-locate to council Offices and the programme for Universal Credit would continue. The headline u-turn on tax credits is in effect more of a postponement as the limits imposed in Universal Credit will produce considerable savings.
DCLG will achieve resource savings of 29%. The wage bill will fall by 20% , there will be savings in the Valuation Office Agency through digitisation and a review of the New Homes Bonus.
Rates
The main headline for local government was already announced at the Conservative Party Conference . This was the disappearance of central government grants and a reliance on business rates.
There is still no detail on how this will be implemented. Questions remain over tariffs and top ups and the central list. There is also no word on any form of equalisation on a permanent basis. The LGA said that block grant is worth £18bn across the country and local government faced an annual black hole of £4.1bn a year.
The new announcement was to allow 2% on council tax to be used solely on adult social care. Local authorities were quick to point out how inadequate this is. Liverpool said their care budget is £172m and 2% on council tax worth £3.2m.
The point is that this is no long term solution to a very real problem, which it is agreed has a direct effect on the NHS. Also the chancellor calculated the financial benefit as £2bn whereas the LGA said it was around £400m and the funding gap of £700m would widen.
There is also an interesting debate about the willingness of local authorities to impose a 4% council tax increase each year although, on these figures, they may not have much choice.
Tony Travers is quoted as saying that “the proposals are radical as councils could only increase revenues by attracting more businesses”.
The significant point is that it will look as if local government is self-sufficient when in fact it will be far from sustainable.
There was an encouragement to local authorities to sell as many assets as possible and use the proceeds to fund services. I can’t see directors of finance being enthusiastic about that.
There was also an encouragement but no force to use revenue reserves. As I have previously pointed out the reliance on business rates is uncertain and risky and authorities not properly providing reserves for lower valuations on appeal and refunds will be very foolish.
This can only be a brief summary but it is not good news and the viability of local authorities is becoming more and more of a talking point.
Richard Harbord
