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NLGN: Central grants for councils could be hit by over half
Government spending plans announced could see grants that councils receive from Whitehall cut by up to 58% according to analysis from independent think tank the New Local Government Network (NLGN).
Following the Comprehensive Spending Review, NLGN said that the 26% headline cut in local government spending means that individual councils could see their general unprotected grants – the amount of money given by central government to local authorities each year – decline by at least 44%. This suggests that district councils could see cuts of up to 58% in their central grants, while single tier authorities face 50% cuts and county councils 44%. Local councils top up these grants with council tax, business rates and their own fees and charges.
NLGN welcomed the strong commitment in the Chancellor’s statement towards devolving greater financial responsibility to councils and removing a large number of ring-fenced budgets. This will provide councils with extra flexibility to manage their cuts in a way that best suits the needs of local communities.
However, NLGN also urged George Osborne to go further with his plans for 16 pilots of ‘community budgets’ which will pool departmental spending for local public service partnerships and allow councils to redesign services for problem families. Successful pilot schemes of the Total Place initiative have demonstrated the significant financial savings that could be made by better joined up working at the local level. The think tank argued that given the scale of the budget reductions, more councils should have access to community budgets so that they can find better and cheaper ways to join up services in areas such as criminal justice and worklessness.
NLGN also raised concerns over the changes to the borrowing rates from the Public Works Loans Board. When the reduction in local government’s capital grant of approximately 45 percent is taken into account, the think tank argued that higher interests rates will drive councils to examine new models of capital financing such as drawing on local government pension funds and accessing money from the municipal bond markets.
Commenting on the announcement, NLGN Director, Simon Parker warned that councils would face some difficult financial decisions following the Spending Review:
“We had been warned that the settlement for local government would be hard and the Government has remained true to its word. Ministers now need to provide councils with the tools and freedoms to manage these very challenging cuts. The radical reduction in ringfencing is a good start, but many councils will be disappointed at the government’s relatively cautious offer on community-based budgets. I hope this is just the start of a much wider roll-out.
The key question now is how these budget cuts will be felt by people on the ground. Our analysis suggests that those authorities most reliant on central government money – such as more deprived areas and single tier authorities – stand to lose the most.
More broadly, every part of the country now needs to take controversial decisions over their level of service provision. As NLGN research has shown, these cuts will fundamentally challenge the current local public service settlement. Back offices, leisure and cultural services will probably take the biggest hit, but every area of service provision will come under scrutiny over the coming years.”
Reflecting on the proposed 33% reductions to the Communities and Local Government department, Simon Parker also said:
‘It is right that central government departments, including the Department for Communities and Local Government, should not be immune from the budget reductions and that Whitehall should share the burden with local authorities. Reducing the size of CLG sends a clear signal that the Government wants fewer central controls placed on local authorities. But simply removing regulations is not enough. NLGN’s research shows that Whitehall needs to become much leaner, more strategic and far more joined up. This will reduce waste, further simplify the way local services are managed and funded and ensure that all departments relinquish their grip on the reins of local power.
On the prospect of higher rates of capital borrowing – a prospect highlighted by NLGN in 2008, Simon Parker said:
“Councils will be concerned that the Treasury is making the rates of borrowing from the Public Works Loans Board significantly less attractive in order to ‘better reflect the availability of capital funding.
‘The PWLB has been the major source of borrowing for local authority capital expenditure for many years. The Treasury’s estimate that self-financed capital expenditure will decrease by 17 percent over the next four years makes gloomy reading.
‘This underscores how important it is that local authorities look for innovative new sources of capital financing to support necessary infrastructure. NLGN’s research suggests that this should include investing money from the near £100bn in local authority pension schemes, and looking to access capital through municipal bonds and local authority reserves and investment.”
