The Government made a great job of 'rolling the wicket' for the Autumn Statement.
In the run up to the statement on many occasions were told of the ‘eye watering’ decisions that would be required, the massive cuts and tax increases that would ensue. Anything that was better than this would be seen as a positive.
Local government is in a better position than we feared. Extra resources for adult social care, no cuts to previous cash expenditure figures and more flexibility on council tax. The sector has done a good lobbying job in the run up to the settlement and the Department for Levelling Up, Housing and Communities has fought our corner well. Clearly there is a 'but' coming.
The 'but' is that this remains an extremely tough period for local government as it will be for the schools and health who also faired relatively well in the Autumn Statement. When the dust settles and we see our settlements, our specific grants and council tax receipts we will undoubtedly notice that it has not kept pace with inflation never mind demand increases. The pressure will be particularly acute as there is no catch up resources to reflect inflation this year. However, other parts of the public sector will find themselves in a worse position, though personally I find that to be little comfort.
The raising of council tax referendum threshold to 5% for upper tier and 3% for lower tier authorities is a double edged sword. This increase could be sellable to many local electorates as it is below the increase in average earnings, and the alternative of large service cuts is not palatable. I would however exercise a word of caution given the largest reduction in living standards since the 1820s of 7% is expected over the next two years. So not an easy decision for local politicians and I have a feeling many will decline, but may well regret that choice in years to come. In addition even at 5% it does represent a massive real terms reduction in income given the prevailing inflation rate of over 11%.
One area that concerns me is what happens to the grants we receive from Government Departments – Department for Transport, Department for Health and Social Care and the Department for Education in particular. Those who remember the early austerity years will recall massive reductions in specific grants, usually in February and March. Those were different days where although on reflection many will think the cuts to major programme areas funded by these grants such as early intervention grants was not a good idea, at least it was possible. The prospect of no or low increases in grants such as Special Education or Public Health is bad enough but reductions would be a major issue for local government. I do fear that there is pain to come for local government especially from those departments that have not fared well, or just believe cutting these grants is the least worse option.
The Government has also done a very good job of kicking some of the more eye watering cuts to after the next election. We will have to wait and see if the post-election chancellor comes up with another set of fiscal rules which kicks the can further down the road. My guess is the latter, but clearly the all-powerful bond market may have a different view.
Many commentators point to the fall in living standards as the defining part of the Autumn Statement. It is unprecedented and we don’t know what the real impact will be. It does seem that it will increase demand for council services, both children’s social care and means tested adult social care, but no doubt other services including housing. The scale of the impact is unknown and then of course there are the unknown unknowns.
It is going to be a very tough few years for councils. The extra funding will reduce and delay the number of councils getting to financial difficulty, but there will be some. There will also be service cuts. In the medium term it looks like more of the same unless the economy starts to grow again. The one statistic that probably really puts the UK growth problem into perspective is from the Resolution Foundation. They calculate that if wages, adjusted for inflation, had grown at the pre financial crises rate of 2% per year since 2008, average earning would have been £15,000 a year more in 2027 than the OBR expects. Earnings at that level would have generated a lot of tax for public services.
It is a pretty depressing outlook, but of course it could have been worse.
Chris Tambini is director of corporate resources at Leicestershire CC and president of the Society of County Treasurers
@LeicsCountyHall
