Spending review: local government budget cut by 25.6 per cent or £6.68 billion by 2015

Spending Review 2010

The Chancellor of the Exchequer George Osborne has today delivered his Spending Review for the period up to 2014-15 to the House of Commons.

The Review notes that:

“Local authorities will have to make significant savings over the Spending Review period, in line with other parts of the public sector. Many councils are already fundamentally reviewing their roles and services, including using greater personalisation and increasing delivery through the voluntary and community sector”

The following briefing highlights the main points relevant to local government within the Review.

Local Government Finance

• The Local Government Settlement will be reduced by 25.6% over the 4 year Spending Review period, excluding spending on fire services and police. This equates to a reduction of £6.68 billion.

• The Spending Review announces that local authorities who freeze their council tax next year will have the resultant loss to their tax base funded at a rate of 2.5 per cent in each year of the Spending Review period.

• Local authorities given greater flexibility to manage council tax together with direct control over council tax benefit, within an overall budget that will be reduced by 10% from April 2013.

• The Government is maintaining the flexibility of prudential borrowing, to enable councils and their partners to invest in key local priorities. Interest rates on Public Works Loan Board (PWLB) loans have been increased to 1 per cent above UK government gilts. The amount of self-financed capital expenditure is forecast to fall by 17 per cent over the four years.

• CLG’s overall resource budget has been reduced by 33 per cent in real terms by 2014-15, through reducing the size of the department and its Arm’s Length Bodies. Alongside this, the department is devolving over £1.6 billion to local government. This means the reduction in the department’s resource budget will be 51 per cent in real terms by 2014-15.

• Capital funding from all departments to councils will fall by around 45 per cent over the Spending Review period. The Government will prioritise capital investment on areas of greatest economic value, such as high value local transport. Further detail on Tax Increment Financing and the future incentives and planning powers open to local authorities to support growth will be provided in a White Paper on local growth later this year.

• In 2011-12, £200 million will be available to councils to accelerate reforms of local services. To support these reforms, the Government will devolve financial control to councils. Ring fencing of all revenue grants will end from 2011-12, except simplified school grants and a new public health grant; the number of separate core grants will be radically reduced from over 90 to less than 10, including a single non ring-fenced Early Intervention Grant worth around £2 billion by 14-15; and more than £4 billion of revenue grants will be rolled into formula grant.

• The first community budgets will be run in 16 local areas from April 2011 for families with complex needs. These will pool departmental budgets for local public service partnerships to work together more effectively, help improve outcomes, and reduce duplication and waste. All places may be able to operate these approaches from 2013-14. Councils and their partners will also have greater flexibility to work across boundaries in health, policing, worklessness and child poverty.

• The Government is ending the previous performance framework for councils. Local authorities and their partners will be able to cease reporting any of the 4,700 local area agreement targets, and those that are kept will not be monitored by Government. In implementing the new Transparency Framework, the Government will work with councils to reduce the amount of data local government is asked to collect by central government, and develop a single, comprehensive list, to be reviewed annually.

• To encourage private sector enterprise and economic growth, CLG will contribute £890 million to the £1.4 billion Regional Growth Fund by 2013-14. The fund will invest in projects and programmes with significant potential for growth and employment, and will in particular support those areas and communities that are currently too dependent on the public sector to make the transition to sustainable private sector led growth.

• A White Paper on local growth will set out the Government’s strategy for ensuring that all places benefit from sustainable economic growth. A central part of this will be ensuring that growth is driven by local businesses and communities, as well as providing the means and incentives to allow local communities to benefit directly from economic development in their area.

• An additional £1 billion a year for Personal Social Services grant, which is rolled into local government formula grant as part of an overall £2 billion a year of additional funding to support social care by 2014-15.

Local and Voluntary Services

• The Government will direct around £470 million over the Spending Review period to support capacity building in the voluntary and community sector, including an endowment fund to assist local voluntary and community organisations. As part of this, the Government will provide funds to pilot the National Citizen Service and establish a Transition Fund of £100 million to provide short term support for voluntary sector organisations providing public services. The Big Society Bank will bring in private sector funding in addition to receiving all funding available to England from dormant accounts.

• The Government will work with the financial sector, the voluntary sector and community groups to develop innovative equity investment opportunities in public services.

• Cultural institutions such as museums will be allowed to use money raised independently more flexibly and establish trust arrangements that enable them to generate more funding from private sources. In addition, the Government will undertake a review of ways to increase philanthropic giving, and will announce further details later this year.

Schools

• Funding for adult apprenticeships will be increased by £250 million a year by 2014-15, relative to the level inherited from the previous government.

• There will be real terms increases in the 5 to 16s schools budget of 0.1 per cent in each year of the Spending Review period, including a £2.5 billion pupil premium for disadvantaged children.

• The Spending Review provides capital funding for new schools by rebuilding or refurbishing over 600 schools through the Building Schools for the Future programme, and investing in new school provision in areas of demographic pressure.

Welfare

• Withdrawing Child Benefit from families with a higher rate taxpayer so that people on lower incomes are not subsidising those who are better off.

• Capping household benefit payments from 2013 at around £500 a week for couple and lone parent households and around £350 a week for single adult households, so that no workless family can receive more in welfare than median after tax earnings for working households. All Disability Living Allowance claimants, War Widows, and working families claiming the working tax credit will be exempt from the cap.

• Time limit contributory Employment and Support Allowance for those in the Work Related Activity Group to one year, to improve work incentives while protecting the most severely disabled and those with the lowest incomes, saving £2 billion a year by 2014-15.

• Protect the statutory entitlement for concessionary bus travel, ensuring that older people can maintain greater freedom and independence.

• Aligning the rules for the mobility and care elements of Disability Living Allowance paid to people in residential care, generating savings.

• Age thresholds for the shared room rate for housing benefits would be increased 25 to 35 years.

• £2 billion over the spending review of resources to implement the universal benefit system.

Social Housing

• Social landlords will be able to offer a new intermediate rental contract which aims to be more flexible, at rent levels between current market and social rents.

• Social tenants to pay around 80% of market rents. The terms of existing social tenancies and their rent levels remain unchanged.

• Taken together with continuing, but more modest, capital investment in social housing, this will allow the Government to deliver up to 150,000 new affordable homes over the Spending Review period through £4.4 billion of capital resources, and additional rents from introduction of the 80% rent i.e. cuts to capital resources for affordable housing

• Reforming the council housing finance system so local authorities have greater control over their own finances, and can reinvest to meet local housing need.

• Reforming the planning system and introducing a New Homes Bonus to support economic growth and increase housing supply.

• A £6 billion commitment over four years to the Supporting People programme (programme currently £1.6 billion a year)

Health and social care

• Total health budget would rise annually above inflation rising to £114 bn by the end of 4 years.

• £2 billion extra for adult social care over SR period – £1billion from NHS to promote joint working and £1 billion additional personal social services grant – this grant will be merged into local government formula grant (nb£400m represents 2.5% of adult social care spending).

• Personal budgets will be expanded for children with special educational needs and adults with long-term care needs.

• Removal of council ring-fencing will exclude the new public health budget which will be ring-fenced.

• Encouragement of new providers in adult social care and early years.

The full document can be viewed on the following website:

http://www.hm-treasury.gov.uk/spend_index.htm

Comment from Andy Sawford, Chief Executive, LGiU

The cuts to local government budgets announced today are huge and unprecedented, they will fundamentally alter the way that councils work and the work that councils do. Many people in local government will feel gloomy today because of the impact on services, communities and jobs, but tomorrow we have to roll up our sleeves and work out how we are going to do the best in incredibly challenging circumstances. This is a big leadership challenge for Councillors in particular, to get the most out of local authorities, pull together other local services, and get the community involved in making tough choices, and in developing new local voluntary and community effort and enterprise.

LGiU expects the government to confirm today that there will be new community budget pilots, following on from the last government’s total place initiative. This is a silver lining in the Spending Review, because we know that services can be improved, and better outcomes achieved, with less resources, if we get the local public sector working together better. The LGiU would urge every area to take this kind of approach whether they are a pilot or not.

Over the next few weeks and months we will get a clearer picture of the overall impact of the spending review on local services. On the positive side the Chancellor has announced that there will be a £1bn regional growth fund and £1bn more each year from 2014 for social care. These will help with regeneration and with supporting and ageing population. On the cuts side, supporting people funding, and funding for specialist schools look to have been hit. These services are not the kind of thing that councils can or should stop doing. On the other hand, clearly there are things that councils will have to cut back on. The end of ringfencing is very welcome and important because it increases councils flexiblity to direct resources to local needs and priorities.

Further Analysis

LGiU will be producing a full briefing and comment in the coming days. If you have any questions in the meantime please contact Dan Garfield on 0207 554 2803.