Last requests from a sector facing a grave financial future

January 29, 2010

Chris Leslie Director, New Local Government Network
Public Finance

While the political parties will be arguing that 2010 is the year of momentous electoral choice, many local government commentators are beginning to wonder whether there is a substantially different path to the predictable course of financial events. All political parties are paying homage to localism, while fearing to tread into braver terrain of local government finance reform. And all the political parties are promising to save ‘frontline’ services from cutbacks – chiefly health, policing, schools, defence – though this conspicously excludes local government grant from the cherished protected few. With CIPFA and Solace predicting cuts of “20% of more” over the next three years, and PWC echoing this analysis suggesting reductions of “around 23% in non-health areas”, councils have already begun applying the brakes, even though technically the next financial year is still pencilled in for supposedly 4% real growth. If the Conservatives are elected, then an immediate Budget will want to get the bad news out early. If Labour stays in power, then a Spending Review this summer may do something similar. So how are the ‘Cinderella’ services across the local government supposed to prepare for the decade ahead?

Unless the local government community is careful, it may feel the cold consequences of the nation’s obsession with deficit reduction, because even if the next administration does recognise some lessons from Keynes and the Japanese 1990s recession, local authority grant is unlikely to be the principal vehicle for counter-cyclical expenditure. In short, local councils will increasingly be on their own, left to their own devices and with little choice but to fend for themselves.

This scenario presents interesting options. While leaders and chief executives have grown used to looking upwards to Whitehall for programme budgets, bidding regimes and new legislation, these are all less likely in the future. If councils accept this fate, the would be wise to campaign hard and wrench from newly elected Ministers as many tools with which to work.

First, councils need to cement the currently vague intentions at the centre to decentralise financial controls. Instead of vacillating over marginal questions of revenue hypothecation, the Treasury needs to be pressed to decide firmly in favour of allowing councils to earmark income from future development as a means to finance core infrastructure, particularly as capital grant will be decimated henceforth. Any revenue bouyancies that councils can extract from the Treasury – for multi area agreements or city region status – should be properly exploited. Councils should argue that multi-year budget balancing flexibilities are need locally and not just nationally.

Second, councils should collectively insist that new Ministers recommit themselves to the fundamentals of policy that have delivered hard-won certainty and stability in recent years. We need to see the restoration of the three year Spending Review. Capital allocations need to be accompanied by longer commitments. The ‘prudential borrowing’ regime needs to be sustained.

Third, councils should endeavour to ‘sweat’ their existing assets and powers systematically, for example, making more urgent progress in the creation of a Local Authority Collective Fund to reinvest council reserves in domestic infrastructure projects, creating new vehicles for local authority pension fund trustees to invest in UK regeneration and exploring the potential for a renaissance in the municipal bond market. Entrepreneurial councils looking to augment their income will be establishing new municipal enterprises. And rather than reflecting on the virtues of the ‘AAA’ status of their authorities, leaders and chief executives will more aggressively utilise these advantages for benefit of local residents and businesses, supporting local businesses and the local housing market.

Finally, councils must not focus on efficiency and the pairing back of services at the expense of performance and innovation. Councils mustn’t wait for Government to rejuvenate the LAA framework but should assert their own suite of key objectives. The Audit Commission should encourage alternative financing techniques rather than risk aversion. And local authorities must secure further clarities from new Ministers on the laws allowing innovative practice.

These four aspects represent the backbone of the reform agenda needed if local democracy is to thrive and deliver service improvement for the decade ahead. Without these basic advances, the threat of stagnation and retrenchment of the financial position in local government will be all too real.


Explore More