Tough settlement: oh yes, it is

This article was originally published on the Public Finance blog

In the 36 hours since the local government finance settlement was announced I’ve heard accusations of ‘spin’ by the government, and ‘whingeing’ by councils. Local Government Secretary Eric Pickles claims that the maximum funding reductions are 8.9%.  But in this season of pantomime, councils are shouting back ‘oh no, it isn’t’ . Pointing to the detailed figures they say the real story is ‘behind you’.

Having been watching this very closely in recent months I’m going to attempt to piece together where we stand. The summer is as good a starting point as any, when in the lead-up to the Comprehensive Spending Review, Eric Pickles offered up substantial reductions in funding for local government, backed by the Local Government Association, which was seeking ‘a deal’ for a ‘Total Place’ model in which councils would have oversight of all local public spending.

When Chancellor George Osborne announced the government’s spending plans it was immediately clear that local government would be taking the biggest hit of all – a 26.8% funding cut over the next four years. It didn’t take long for the penny drop in town halls that councils would be looking at massive budget cuts, not just over four years, but actually in the first year.

Councils that said they would have to cut services were called ‘lazy’. They were told it can all be achieved by efficiencies, shared services, better procurement and cutting senior salaries. Council leaders have been torn between the local reality – that services have to be transformed, and in some cases cut – and the national rhetoric that so called ‘frontline services’ won’t be affected.

When the government realised that the prophecies of doom for some councils were indeed true, they took action to avert it. Eric Pickles and his department did three things. First, they worked out a new way of banding councils when applying the formula to dampen the variations in cuts. Second, they found some cash in the Communities and Local Government attic for a ‘transition grant’ for councils facing the biggest reductions, and built into the overall figures around £650m from the NHS for social care services. Third, as governments always do when they announce the figures, they put them forward in the best possible light.

Eric Pickles claims that the maximum reduction is 8.9% , which is accurate if you accept the ‘spending power’ calculation, which critically includes the council tax element. If you separate out the figures and look at the reductions in formula grant and specific grants, the actual reduction in money that comes from central government to local government starts to look much higher.

Now councils are busily trying to work out what the announcements mean for them. In particular, they will be combing through the specific grants, around which there is currently some confusion. As is the usual practice from past years, the settlement that has been announced is only ‘provisional’ and there will be some changes following the consultation over the coming weeks. Then councils have to set their budgets and get on with the job over the next four years and beyond of operating on much reduced budgets. How they do this depends on a wide range of factors, such as the options for further efficiencies and new models and arrangements for delivery, alongside critical factors such as their asset base.

And for councils that still operate a local theatre, perhaps they could get hold of a magic lamp or some magic beans to help them through these tough times.