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Behind the Autumn Statement gloss: local government hit by 56% cuts

Behind the Autumn Statement gloss: local government hit by 56% cuts

🕔26.Nov 2015

George Osborne’s decision to scrap a £4.4 billion raid on tax credits as well as announcing the largest house-building and road investment programme since the 1970s delivered some favourable headlines for the Chancellor.

The Times went with ‘Generous George cashes in windfall’, referring to the additional money Mr Osborne had to distribute because economic recovery means higher than expected tax revenues are flowing into the Government and debt servicing costs have gone down.

This enabled the Chancellor to put together a politically astute package which included £10 billion more for the NHS, another £2 billion for social care and a promise of no further cuts in police spending.

There is, however, one Whitehall department that will continue to suffer under Mr Osborne’s austerity cosh – grants to local government will be cut by 56 per cent in real terms over the next five years.

So by 2020, Birmingham city council will have lost getting on for £1 billion compared with grant settlements in 2010. Mr Osborne claims the council can alleviate the pain by “smarter” working such as cashing in from its extensive property portfolio, slashing back office costs and keeping the business rates uplift from new firms moving into the city.

The Chancellor’s claim that a two per cent council tax levy will help Birmingham to address the pressures in its social care budget doesn’t really add up to very much as it represents about £5 million, which although welcome is pretty much a pin prick in the overall scheme of things.

The immediate problem facing the Labour-led council is to identify about £200 million of spending cuts for 2016-17. Proposals drawn up by financial consultants Deloitte are about to be shared with councillors and will form the basis for a budget consultation exercise.

New city council leader John Clancy wants to use the council’s £6 billion of property and land assets to develop a wealth fund which he says will, over a period of time, be able to pay for thousands of new homes a year to be built as well as free school meals for infants and junior schools.

Using property in this way as well as Clancy’s other big idea – that the West Midlands Local Government Pension Fund invest some of its billions of pounds in Brummie Bonds, thereby generating more cash for the council to spend – could be just the type of radical plan to appeal to Mr Osborne.

As the Treasury chart below shows, the percentage reduction in local government spending far outstrips all other Whitehall departments. Only transport and HM Treasury itself come close, with 37 per cent and 24 per cent cuts.

Change 2015/16 to 2019/20
2015/16 2019/20 £ billions % change
Education 53.6 53.0 -0.6 -1%
NHS (Health) 111.6 115.2 3.7 3%
Transport 2.6 1.7 -1.0 -37%
CLG Communities 1.5 1.1 -0.4 -29%
CLG Local Gov 11.5 5.0 -6.4 -56%
BIS 12.9 10.7 -2.2 -17%
Home Office 10.3 9.8 -0.5 -5%
Justice 6.2 5.2 -0.9 -15%
Law Officers’ 0.5 0.5 0.0 -2%
Defence 27.2 27.9 0.6 2%
Foreign Office 1.0 0.9 0.0 0%
Int’l Development 8.5 10.2 1.8 21%
DECC 0.9 0.8 -0.1 -16%
DEFRA 1.5 1.3 -0.2 -15%
DCMS 1.1 1.0 -0.1 -5%
Work and Pensions 5.8 5.0 -0.8 -14%
Scotland 25.9 24.6 -1.3 -5%

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