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Council’s austerity black hole ‘heading towards £700m’

Council’s austerity black hole ‘heading towards £700m’

🕔04.Feb 2013

councilhouseBirmingham City Council can expect to lose one-third of its annual Government grant in the five-year period 2010-15 as a direct result of the Chancellor’s austerity measures.

The figure is worse than expected and has been recalculated following errors by officials at the Department for Communities and Local Government who mistakenly “double counted” the amount of income local authorities would receive from council tax.

In his 2010-15 Spending Review, Chancellor George Osborne originally forecast a 28 per cent cut in grant for councils in England and Wales – an announcement greeted with outrage from town halls across the country.

That figure has now been revised upwards to 33 per cent and will increase even further by 2016-17.

Mr Osborne has made it clear that future local government cuts will be higher still, with a 10 per cent reduction expected for 2014-15 alone. Birmingham can expect to be about £350 million worse off between 2010 and 2017 than would have been the case if grant had increased in line with inflation.

With soaring demand for adult and children’s social care showing no sign of reducing, and funding pressures from other services, the council’s financial crisis is growing steadily greater. A cuts package of £600 million between 2011 and 2017 will probably grow to £650 million, or may even hit £700 million.

Although the city council has a total annual income of £3.5 billion, two-thirds of this is in the form of ring-fenced Government grants that must be passed on to schools or spent on housing.

The annual controllable budget – income over which the council has direct control – stands at £1.3 billion. It is from this area that the £600 million-plus savings will have to be identified, effectively reducing by half the amount of cash available for non-statutory services such as sports centres, community libraries, swimming pools and the youth service.

The grim scenario appears to lend credence to Birmingham city Council leader Sir Albert Bore’s warning of “the end of local government as we know it” and his acceptance that many traditional public services will simply have to be decommissioned from 2014-15.

Sir Albert has joined forces with the Labour leaders of the seven English core cities, the country’s largest local authorities, in sending a new letter to Local Government Secretary Eric Pickles warning of a “looming financial crisis” and pleading for a halt to the austerity programme.

The core cities’ second letter to Mr Pickles since December, again demanding an urgent meeting, states: “The growing pressure on services, in particular social care and other changes to the funding system mean that our real savings targets are several times greater than the cuts in grant.

“The biggest cuts in funding are still to come, with the average grant cut in 2014-15 now likely to be around 10 per cent and the Chancellor making it very clear in his Autumn Statement that cuts into the next Parliament will be significantly greater than previously expected.

“As a result the reductions in important services that will inevitably begin this year will intensify with the complete decommissioning of some services from 2014-15.”

The letter reveals that Birmingham City Council has almost no “rainy day” money to fall back on. Unallocated cash reserves stand at 1.85 per cent of the net budget, the lowest of any of the eight leading English city councils. The figure is so low that the District Auditor has advised Birmingham to urgently build a cash reserve.

The letter continues: “The spending cuts for 2013-14 are significantly greater than previously announced and the original spending power figures contain serious inaccuracies. There has been no ministerial correction in Parliament or apology for the provision of this misleading information.

“This crisis is very real and will have a significant impact on the quality of life and economic vitality of our greatest cities. But we believe it can be tackled if the Government is prepared to work with us instead of just repeating calls for efficiency savings that are already being made but will in any case be inadequate.

“Local councils have been portrayed as being opposed to change and scaremongering or holding out a begging bowl. On the contrary the Core Cities would urge the government to be more radical and bolder in making the necessary reforms to local services and how they are financed – as long as these are progressive reforms that produce better outcomes.”

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