Budget to cost councils billions

Councils face billions of pounds worth pressure from extra burdens and loss of income as a result of last week’s Budget, according to experts.

With the Local Government Association (LGA) estimating local authorities will face £9.5bn in the forthcoming cuts, the scale of the challenge mounted after chancellor George Osborne’s announcement.

The LGA said that just one measure – increasing the minimum wage to £7.20 from next April could cost councils £1bn a year by 2020-21.

Cllr Gary Porter, chairman of the LGA, said: “Councils support proposals to introduce a national living wage to help ensure staff receive a fair day’s pay for a fair day’s work.

“However, our analysis shows the cost to councils of implementing the change will keep growing and reach £1bn by the end of the decade.”

He said that the extra costs need to be considered by the government in the wider debate about future council funding. He called on ministers to fund the costs of the increase in wage costs now faced by council staff and care workers.

In addition, documents released beside the Budget showed the Treasury estimates that councils will lose £1.75bn from a measure to reduce social housing rents by 1% each year.

Its costing is based on the difference between forecast housing benefit expenditure under a policy of downrating social rents and under the existing policy, which allows for uprating of rents by CPI+1% each year.

And Giles Peaker, solicitor and partner in the housing and public law team at Anthony Gold Solicitors, said another Budget measure to lower the overall benefit cap to £20,000 (£23,000 in London) was likely to have a double whammy effect on councils.

“The single person cap, certainly for London, looks very likely to make even a room in shared property unaffordable at private rents. The result will be a significant increase in homelessness from unaffordable properties.

“Suitable temporary accommodation will also be caught by the cap, meaning that councils will have to either lower rents for temporary accommodation, or blow their discretionary housing payments budget on supporting it.”

He also said there would be “substantial administrative burdens and costs” for councils as a result of Osborne’s decision to increase rents for families earning more than £30,000 (£40,000 in London).

In a blog post, CIPFA housing panel chairman Ken Lee estimated that councils will also be required to hand over £4.5bn worth of property a year to fund the government’s proposal to extend the Right to Buy to housing association tenants.

This means the local authority stock’s income is reducing possibly to the point when it starts to become questionable if they all can continue,” he said.