Research Project

Scanning Financial Horizons: Modelling the local consequences of fiscal consolidation
7 July, 2010

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  • Local Government likely to lose at least a third of Central Government funding over next four years
  • New polling shows public opposition to service cuts
  • Council chiefs predict that significant services may have to be scrapped
  • Treasury urged to give councils greater financial freedoms

Local councils could be hit with funding cuts of at least a third from central government according to new research from the think tank New Local Government Network (NLGN).

Analysing figures from the recent Budget, NLGN is predicting that this could leave councils with a funding reduction of over £12 billion, which could lead to services being cut or charges for local services increasing.

The report, Scanning Financial Horizons, warns that councils must be given greater financial certainty from Whitehall and greater flexibility to raise local revenue if it is to cope with the cuts. NLGN recommends the introduction of new “Place Agreements” of shared public spending across the local state and for local authorities to have full discretion over Council Tax levels as well as the ability to retain a slice of business rates locally to incentivise economic growth.

The Chancellor George Osborne has already announced reductions of £1.165 billion to local authority budgets for this year but NLGN predicts that these will be “relatively small compared with the tsunami of funding cuts that will hit councils over the course of this parliament”.

Scanning Financial Horizons also publishes polling evidence showing that councils are already preparing to cut the range of services they provide whilst the public are not prepared to accept service cuts. In a survey of council Chief Executives and Finance Directors the report finds that the majority are expecting to cut their budgets by between 20-25% and almost a third anticipating the gap to be wider than that.

Graph 1

Those surveyed also said that environmental services such as street cleaning and waste collection were most likely to be cut alongside cultural services such as parks, museums and libraries.

In a separate poll of public attitudes to service cuts, conducted by Populus, the results showed widespread opposition to local service cuts, particularly to areas such as waste collection and social care. The survey showed a lack of support for any cuts to local services and a preference for increased taxation rather than service cuts to maintain local service levels.

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Table 2

Author of Scanning Financial Horizons, Nick Hope said that councils are due to face unprecedented fiscal challenges over the next few years:

“A tsunami of funding cuts will hit councils over this parliamentary term. If demands on local government expenditure were to remain static in this period then meeting them would be tough, but demands on expenditure such as in social care are likely to grow, making the scale of the challenge even greater. Local government will have to climb up a downward moving escalator if services are not to hit rock bottom.

With some areas of Government spending protected, our research indicates that the burden of cuts placed on councils will be substantial, meaning that local authorities are having to explore tough choices about how finances are allocated and how to cut services and increase charges.

Our research shows significant public opposition to reduced services, meaning that councils may be stuck in an impossible position of having to match high public expectations without the financial means to do so.

A full and public debate should take place and the fundamental role and purpose of the local authority should be reassessed, in order to redefine and renegotiate the relationship between councils and the public. Local communities must arrive at a feasible new service settlement about what councils can provide and what citizens and community groups could take on themselves, with proper support, in the future.

Radical efficiency options are being explored by many councils, but they must be given additional fiscal tools, such as greater funding certainty and financial flexibility from the Treasury, if they are to minimise the impact on frontline services.”

Publication Date: 7 July 2010
ISBN: 978 1 903 447 87 1
Authored by: Nick Hope, James Kirkland and Dr David Chapman