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An Autumn Statement, but a wintery outlook for councils

An Autumn Statement, but a wintery outlook for councils

🕔05.Dec 2013

Will the Chancellor have anything much to say about local government, and if he does will his remarks give a glimmer of hope beyond the gloomy austerity message of the past two years?

There will be plenty of council leaders across the country praying that Mr Osborne might ease the cosh that has descended on town halls. Though the Chancellor has promised to exempt local government from the latest round of cuts, rising demand effectively means that Councils will have to do more with less. But the chances of this freeze happening again appear to be slim given his past record.

Local government continues to feel the brunt of the Government’s strategy to pay down debt through an unprecedented public sector squeeze.

Birmingham City Council, the UK’s largest public body, will have experienced a 50 per cent cut in its net revenue budget between 2010 and 2018, on current forecasts. About 10,000 council jobs will have disappeared over the eight years.

When the impact of reduced government grant and the pressure for increased spending on adult social services is taken into account, the council expects it will have to identify £825 million of savings between 2010-11 and 2017-18. That figure is almost as large as the annual revenue budget.

Over the next four years the council estimates it will have to slash budgets by £550 million. There have even been guarded warnings from the District Auditor that the time may come when he has to declare that Birmingham council cannot balance its books and is no longer a ‘going concern’.

So what could the Chancellor do ease frayed town hall nerves? The Rowntree Commission on Local Government set the scene last year with an influential report urging Mr Osborne to move away from the traditional role that “local government is part of the problem rather than part of the solution”.

Raising, somewhat inevitably, the spirit of 19th century entrepreneurs, the commission report concluded: “Local government must rediscover the spirit of the original civic entrepreneurs, such as Joseph Chamberlain, who created the Victorian utilities and infrastructure that shaped Britain’s great cities and Joseph Rowntree who, whilst growing his business, devoted time and resource to public life.

“Just as clean water, sewers and electricity were the utilities needed in the 19th century, local government can help develop the infrastructure needed for the 21st century. Councils can stimulate good local economic growth, ensuring that the benefits are felt by all, and forge a new social contract with citizens to reinforce and restore people’s faith in local democracy as a progressive and vital British institution.”

Councils in future would have to become enablers, rather than direct providers of services, encouraging civic-minded businesses to play a greater role in public life replacing the “managerialist, formulaic and hierarchical partnership approach that too often produces meetings and policy papers rather than action that improves people’s lives”.

All noble and high-minded stuff, but a rather large elephant remains in the corner of the room: where’s the money coming from?

The Rowntree Commission talked about ways of levering in more cash through innovative schemes such as tax increment financing. Enterprise zones in Birmingham and elsewhere are based on allowing the city council to fund regeneration by borrowing against increased business rate streams and, in theory, have the backing of Mr Osborne and the Treasury.

Mr Osborne may have something positive to say about Lord Heseltine’s No Stone Unturned report, which envisaged a ‘single pot’ of Whitehall money being handed over to local authorities via local enterprise partnerships.

The scheme has tentative Treasury support, but the first ‘pot’ turned out to be nowhere near as generous as the £50 billion envisaged by Lord Heseltine. Mr Osborne played it safe with a £2 billion pot. He could use his Autumn Statement to increase the size of the pot, but don’t bank on it.

If Mr Osborne wishes to be radical, and to help local government, he could show an interest in some of the funding schemes suggested by the commission and other proposals emerging in Birmingham.

These ideas include municipal bonds and regional banks as well as permitting councils to levy additional business rates and a tourism tax. It seems unlikely, though, that Mr Osborne would be willing to enrage Tory backbenchers by inventing a portfolio of new local taxes.

There are other emerging ideas including economic policies being developed by Labour Birmingham city councillor John Clancy and Aston University professor David Bailey. What’s been dubbed ‘Clancynomics’ would enable £200 billion of local government pension funds to be used for investment in local regeneration and house building. It is reported that the scheme is being actively considered by shadow chancellor Ed Balls and Labour leader Ed Miliband.

Clancy points out that pension fund investment in public sector regeneration schemes is commonplace in Europe and could be implemented here at no additional cost to the government.

Birmingham City Council chief executive Stephen Hughes entered the debate recently with a novel suggestion for Mr Osborne. Mr Hughes proposed scrapping the city council’s main source of income – government revenue support grant worth over £750 million a year – and allowing the council instead to syphon off a proportion of VAT collected in Birmingham.

This, Mr Hughes argued, would give the council an incentive to bring new businesses to Birmingham and to regenerate the local economy because by doing so the local authority would receive more income through additional VAT.

It’s an interesting idea although, as with any method of funding local government, ways would have to be found to protect poorer authorities against richer cities where the amount of VAT collected is considerably greater. As Mr Hughes candidly admitted, “I don’t suppose anyone is going to do this.”

Combining tax and accountancy expertise with high level parliamentary intelligence, RJF and Bloomer Heaven are pleased to offer Chamberlain Files readers an advance briefing of what to expect in the Autumn Statement. (Click to view)

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