Back to the dark days

By Heather Jameson | 03 August 2022

Councils face a return to the darkest days of austerity as a triple whammy of pay rises, inflation and growing need hits

Councils will be plunged back to the darkest days of austerity unless there is a funding boost to cover pay rises, inflation costs and soaring energy bills, leading chiefs have warned.

As trade unions and employers attempt to thrash out a pay deal amid the cost of living crisis, the true cost to council budgets has started to emerge, and chiefs fear it will be unaffordable.

Leeds City Council chief executive Tom Riordan said the double whammy of pay increases and inflation has left his council with close to a £20m funding gap.

He said: ‘If we don’t properly fund the pay rises agreed in the sector, cover the inflationary effect on energy costs and recognise there are still backlogs in the system from COVID, then we will be back to the worst period of austerity.’

He added: ‘It won’t be sufficient for the Treasury to allow us to increase council tax… that will potentially put incredible pressure on household budgets at a time they are struggling as well.’

Brent LBC chief executive Carolyn Downs said her council budgeted £10m for pay rises before inflation soared and that has risen to £15m. While she supports increases for staff, the problem of funding new costs remains.

‘It is unaffordable,’ she told The MJ.

After 12 years of belt tightening, Ms Downs said, there is no more discretionary spend left to cut.

‘We’d assumed for the next two years our reductions would be £15m, but it was manageable. Our £15m has now gone up to £30m and that is not manageable.’

Manchester City Council faces a similar dilemma. The employers’ pay offer will cost the city £15.9m, £9.5m more than they accounted for. For inflation, the council budgeted a generous £16.2m, up from £4m the previous year – but that is still £1.5m short.

All in all, the city faces a black hole of £11m.

Manchester’s chief executive, Joanne Roney, said council tax caps, restrictions on commercialisation and centrally dictated business rates have left councils with nowhere to turn. ‘Unless there is some response from Government to these new pressures, then we’re going to have to make budget cuts which directly cuts into services.’

But with 40% of the city’s children living in poverty and the cost of living crisis hitting them hardest, she added: ‘Any cuts that directly worsen opportunities for young people in the city, or quality of essential services, will have a devastating impact.’

Ms Roney, who is also Solace president, said: ‘It is a challenge. Post-COVID to get back round that austerity loop again… it is really difficult.

‘There has to be a serious question asked: whether it is acceptable for children, in particular, to live with the levels of poverty we are seeing.’

A chief executive of a smaller authority, who asked to remain anonymous, said they faced a funding gap equivalent to 20% of the council’s budget. They said the council was doing everything it could to work efficiently, but added any significant transformation programme would need upfront investment.

‘There is no low hanging fruit,’ they warned.

Speaking on behalf of the District Councils’ Network, Oadby & Wigston BC chief finance officer Tracy Bingham said of the pay award: ‘It is a dichotomy. I’m really supportive from a staff welfare perspective.’

But she added: ‘I’m extremely concerned from an employer perspective. Most councils won’t have budgeted at this level, and the impact isn’t one off so it will hit medium-term financial plans hard.

‘Alongside all of the other pressures, it’s going to be tough to absorb.’

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