Why are local authorities so nervous about their funding?

20th Dec 2012

Why has there been an outcry from councils over the 2013 funding settlement for local authorities? Gordon Hector explains.

The funding settlement for local authorities for next year was announced yesterday, and it’s led to outcry from councils. Why?

Well, I think we need some context. Cast your minds back to 2010, and the spending review. Local government takes up a surprisingly large chunk of spending – DCLG’s budget was £33.6bn then, dwarfed by Health (£106.4bn) and smaller than the MoD (£46.1bn) or Education (£57.6bn) - but much bigger than BIS, Transport, DECC or DEFRA (£21.2bn, £13.6bn, £3.1bn, £2.9bn respectively). So if you’re going to cut, you are inevitably going to look at the DCLG budget.

Then consider that that health was protected, overseas aid spending was increased and education and defence received below-average cuts.

That meant deeper cuts had to be made elsewhere, and DCLG took a hit. Its budget is split into two chunks – local government (mostly funding local authorities) and communities (things like fire services, homelessness, big society spending). The 2010 spending review reduced the DCLG local government current spending by 27%, and capital spending by 100%.

The IFS, crunching the numbers after the comprehensive spending review, produced the following graphs of 'winners' and 'losers', on spending to 2014-15 in real terms. The relative situation of local government is clear:

So that's the first thing to bear in mind about the current argument: local government took some pain at the last spending review. The way that spending was allocated means it is technically possible to argue that the cuts overall can look modest – averaging a couple of percentage points across all government spending – while entirely missing the point that some departmental budgets were earmarked for bigger decreases.

A second key thing is that local government is legally required to provide certain services, no matter how much their budgets shrink.

Aside from some amusing statutory duties (did you know parish councils have to provide allotments, if there is ‘sufficient demand’? Or that tunnels must have dedicated ‘Tunnel Managers’?) it’s a complex picture. Things like arts, libraries and leisure centres have real local discretion, while other things are mandated, like social care. But often, councils supplement the legal minimum with non-statutory services – for example, funding community centres beyond their minimum child services requirements, or adding regeneration work to their planning departments.

In 2011, the Government launched a review of statutory and non-statutory duties to tidy up the rules, in part because they are so byzantine. There’s a case to be made that spending reductions could streamline local authorities, stripping out bureaucracy and focussing the state on the most needy – but that vision is harder to sustain with such complexity. Regardless of your ideological view of what government should or shouldn’t provide, it surely undermines attempts to develop logical, consistent services.

And one final thing: without a deal on social care funding, an ageing population is projected to become so expensive that doing much else will be pretty difficult. Hence the famous graph of doom.

So, put that all together: local government took a big chunk of the cuts outlined in 2010, they have limited discretion over what they can or can’t provide, and they’re at the sharp end of demographic change.

Not entirely surprising, then, that council chiefs might be more than a tad nervous.