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Town hall spending power cut by a quarter as ‘jaws of doom’ close in

Town hall spending power cut by a quarter as ‘jaws of doom’ close in

🕔09.Mar 2015

The spending power of local authorities in England has been cut by almost a quarter during this parliament as a direct result of the Government’s ‘austerity’ policy, a new study has shown.

And in an effort to protect adults and children’s social services many councils have opted for ‘soft targets’ by slashing spending on culture, museums, libraries, transport and regulatory services.

Research by the Institute for Fiscal Studies suggests the most deprived parts of the country more reliant on central government grant to run services have been hit hardest by the squeeze.

Birmingham city council will lose £100 million in grant between 2014-15 and 2015-16, equivalent to an 18.6 per cent cut. The council expects to have to reduce spending by about £830 million between 2010 and 2017 following significant year on year grant cuts.

The financial crisis was set out by council leader Sir Albert Bore in his budget speech last week. He said the authority was facing its largest ever cut in grant funding in a single year.

Councillors approved a £105 million savings plan for 2015-16 and will aim to plough an additional £120 million into children’s safeguarding services over the next three years.

The IfS study appears to back Sir Albert’s ‘jaws of doom’ scenario under which councils like Birmingham are forced to divert more and more funding to meet the growing demands of social care, leaving non-statutory services such as community libraries, sports centres, parks and museums at risk of closure or of being run by volunteers.

One of the most controversial cuts to be approved by the city council this year will see £1.3 million lopped from the Library of Birmingham budget, cutting opening hours by 40 per cent and getting rid of about 100 jobs. Further cuts to the library service and funding for the Birmingham Museums Trust are expected next year.

The size of grant cuts varied markedly across the country according to IfS – Westminster saw a cut of 46.3 per cent, while North East Lincolnshire experienced a cut of 6.2per cent. On the whole, more deprived areas and those that saw faster population growth have seen larger cuts.

Further cuts planned for 2015–16 will generally be focused on the same local authorities that have lost over the last five years.

London boroughs face cuts of 6.3 per cent on average next year compared with 1.9 per cent cuts faced by shire counties. Without a change in policy, any further cuts over the next parliament are also likely to affect the same places again, according to IfS.

The main findings of the study are:

  • Spending by local authorities in England has been cut between 2009–10 and 2014–15 by 20.4 per cent after accounting for economy-wide inflation. Taking into account population growth, spending per person has been cut by 23.4 per cent
  • Grants from central government, excluding those specifically for education, public health, police and fire services, have been cut by 36.3 per cent overall
  • Taking grants and council tax revenues together, local authorities’ total revenues have fallen by 19.9 per cent in real terms. But the overall cut to spending was actually slightly larger than this because, on average, local authorities have added to their reserves over this period.

Local authorities have not cut all service areas equally. Despite it being the largest component, adults and children’s social care has seen one of the smallest cuts to date. Despite this relative protection, net spending per capita on social care was cut by 16.7 per cent in real terms between 2009–10 and 2014–15.

Some of the service areas that saw the largest spending cuts were planning and development, which was cut to less than half its original level, regulation and safety, housing and transport, all of which were cut by at least 30 per cent.

The study warns:

There are likely to be further cuts to local government spending power beyond the election and there are a number of reasons to believe that these may be concentrated on many of the same authorities that have already seen the largest cuts.

In particular, those areas with the lowest local revenue-raising power will continue to be the most exposed to cuts in central government funding, while those with higher population growth will find it harder to maintain levels of spending per person.

David Innes, a Research Economist at IFS and one of the authors of the report, commented: “English councils – like many government departments in Whitehall – have experienced sharp cuts to their spending power over the last five years. But the size of the cuts has varied a lot across England.

On the whole, it is more deprived areas, those with lower local revenue-raising capacity, and those that have seen the fastest population growth that have seen the largest cuts to spending per person. Further cuts are likely to come in the next parliament and they could well be focused on many of the same local authorities if the current mechanism for allocating funds is retained.

Under the new settlement funding assessment, all local authorities face the same percentage cut to the main elements of their grant funding each year. This amounts to a greater cut to overall spending power for local authorities that are more reliant on revenues from central government grants than on revenues from council tax – in other words, those that have least revenue-raising capacity.

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