More cash, but not enough

By Heather Jameson | 01 December 2020

The announcements in Rishi Sunak’s Spending Review, unveiled last week, were overshadowed by the scale of the debt as revealed by the Office for Budget Responsibility (OBR). Institute for Fiscal Studies director Paul Johnson summed it up in his post-Spending Review match report when he said levels of borrowing were ‘record-breaking, breath-taking, huge… choose your superlative’.

But while the scale of debt is daunting, he claimed he was reassured by OBR forecasts which suggested there would only be a 3% hit to the economy in the long-term, ‘way less than the impact of the financial crisis’ – a prospect far less terrifying that it could be.

That said, Mr Johnson described the Spending Review as ‘pretty austere’, cutting non-COVID spending by more than £10bn, and allocating no extra COVID cash beyond next year. ‘The key core Spending Review decision was to reduce public service spending, other than on the £55bn allocated for COVID, relative to March plans,’ the economist said.

‘It will mean a tougher time for some public services than expected, especially after next year. This may not quite be a return to austerity, but for some public services it may not feel much different.’

What’s more, he claimed the Conservative chancellor had created a ‘tax raising Spending Review’, by scaling back support for local authorities while offering the ability to increase council tax by up to 5% – or 2% plus a 3% social care precept. ‘It is perhaps worth remembering that on April Fool’s day next year council tax valuations will become 30 years out of date,’ Mr Johnson said.

Continued austerity is no joke for local government. Even before the announcement there was widespread disappointment that the review was set to cover a single year at a time when the sector is desperate for longer-term stability.

The major issues facing councils – funding adult social care, the sustainability of business rates and council tax as a funding mechanism, and the increasingly precarious nature of council finances – are no closer to a resolution.

With up to 10 councils currently rumoured to be close to a Section 114 notice in the run up to the review, the immediate cash injection and council tax flexibility may be enough to keep the wolves from the door in the short term, even if it has kicked the longer-term issues into the post-COVID long grass.

Overall, the Treasury claims local authorities’ spending power has increased by 4.5%, or £2.2bn, next year – but that does include the assumption of maximum council tax rises.

There was £3bn for COVID pressures: £1.55bn for additional expenditure created by the pandemic, £670m to help people struggling to pay council tax, £762m to compensate for loss of up to 75% of council tax and business rates next year, and the existing scheme to make up some of the losses on fees and charges has been extended until the end of June.

There was an additional £254m to tackle rough sleeping and £220m to cover the Holiday Activities and Food programme through Easter, summer and Christmas in 2021 following the high profile campaign by footballer Marcus Rashford. But the most perplexing omission from the statement was a lack of funding for public health, described to The MJ as an ‘own goal’ by one local government insider.

Heavily trailed plans to freeze public sector pay for all but the frontline health workers was pitched as a way to level up fairness between public and private sector staff, and softened by the announcement that those earning less than £24,000 would get a £250 pay rise.

The Local Government Association (LGA) has estimated such a rise would cost councils £100m, but with local government pay negotiated separately it will be down to the sector to decide which way it will jump.

Aside from a hefty £6.3bn for health, Mr Sunak spent big on infrastructure, in its continuing efforts to kickstart the economy, level up, and create the Prime Minister’s Green Industrial Revolution.

As well as releasing the long-awaited National Infrastructure Strategy and a review of the Green Book, the chancellor updated rules for the Public Works Loan Board, cutting the rates back to where they were a year ago and tightening up the rules to prevent commercial investment for yield alone.

The resulting hoop-jumping may not be popular with hard-pushed finance directors, or indeed the LGA, but was supported by the Chartered Institute of Public Finance and Accountancy which has raised concerns over excessive commercial investments.

The highlight of the infrastructure announcement was a £4bn ‘levelling up’ fund. The fund will see councils bid for up to £20m each to fund roads, railway stations, museums and art galleries. Launching the fund, Mr Sunak said the project should have ‘real impact’ and should command local support, including from the local MP.

While the prospect of a bidding process is not overly welcomed by local government at the moment, one insider told The MJ, it is a more significant amount of cash at stake than the Towns Fund – and much less open to political ‘gerrymandering’.

Overall, with £5.5bn extra funding for local government next year in total, the Spending Review may have delivered more than expected but, as noted by Institute for Fiscal Studies research economist Ben Zaranko: ‘It won’t be enough to reverse the cuts that councils have faced since 2010.’

What’s more, the multi-year Spending Review for health, schools and defence – along with the associated spending for the devolved nations – could mean that hopes of a local government reprieve in the longer term have also been dashed.

As Mr Zaranko said: ‘Many of the less glamorous or high profile departments might be facing a very tight settlement after next year.’

What they said

‘This Spending Review is, sadly, yet another missed opportunity that will come at a cost to our people and our places’

– Martin Reeves, Solace spokesperson for Local Government Finance

‘The Spending Review presented a bleak economic outlook for the UK, with growth set to be lower for longer than the government had anticipated in the spring’

– Karen Sanderson, director of public financial management, Chartered Institute of Public Finance and Accountancy

‘It is good that the Spending Review provides a potential increase of 4.5% in council core spending power to support vital local services. However, this assumes council tax bills will rise by 5% next year which will place a significant burden on households.’

– Cllr James Jamieson, chairman of the Local Government Association

‘We were hoping for a settlement that would enable us to stabilise care and support services for millions of older and disabled people and family carers… it seems as if the fragmented short-term funding announced by the Chancellor falls alarmingly short.’

– James Bullion, Association of Directors of Childrens Services president

‘As we have said throughout the pandemic, a centralised, one size fits all, recovery effort will just not work. We need to make sure our councils have the funds they need to play their role.’

– Cllr Judith Blake, chair of Core Cities UK and leader of Leeds City Council

‘Relative to pay in the private sector, public sector pay prior to the pandemic was its lowest point in more than 25 years.

– Ben Zaranko, a research economist at the Institute for Fiscal Studies

‘Counties received the biggest slice of the current tranche of the EU’s Structural Funds in England and it is imperative that our member councils do not lose out under its replacement.’

– Cllr Barry Lewis, economic growth spokesperson for the County Councils’ Network and leader of Derbyshire CC

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