Economy and Infrastructure

Local government spending is being cut to sustain inefficient central government services

Professor Tony Travers of the LSE brought with him to the LGA conference 2013 a bracing message – praising local government for its financial management and approach to shrunken grants, but warning that the pain is likely to continue for years. 

Tony Travers opened his keynote speech to the LGA with a promise not to be too pessimistic – but struggled to stick to it. 

Speaking of the spending review for 2015/16, published just before the conference, Travers noted: “Those figures…suggest that there will be a fifth year of local government facing falling cash expenditure: nothing like this has happened since 1945. However bad the economic crises before, they’ve never been like this. 

“In the same document, there were total figures for…total managed expenditure and departmental expenditure levels for the year 2016/17 and 2017/18. They show a very powerful continuing squeeze…local government is a component of that figure, and so this squeeze, under these figures, will carry on until at least the end of 2017/18.” 

Travers estimated that from 2011/12 to 2017/18, average local government expenditure in cash terms would drop by 25-30% (40% in real terms). “I have to say again: nothing like this has happened at any point since 1945. 

“I’m not even sure – though it’s hard to get figures for this – it would have happened in the 1920s and 30s.” 

He said this shrinkage has to be seen alongside growing demand for spending, primarily due to demographics but for other reasons too. “That creates this fatal gap between spending going down and spending pressures going up,” he said.

He discussed the ringfencing of “most central government spending” – the NHS, schools, international aid and parts of the defence budget – and the rapid growth of welfare spending. He noted: “Both the Government and opposition are now talking about ways to restrain growth in welfare, but in doing so conceding that it has been growing fast and thus squeezing out money available for other parts of the public sector, particularly local government.

“Local government, more than any other major element of state spending, is being cut in effect to sustain what is often inefficient central government services. You only have to be a regular reader of National Audit Office reports on the activities of national government departments to see that, to put it generously, they don’t always get these things right.” 

Travers said the current crisis is long term, not an immediate consequence of the 2008-9 financial meltdown, since national politicians are in thrall to opinion polls but too scared to make the case for taxes to pay for services. 

He said: “In a democracy, you wouldn’t expect politicians to stray a long way from what the public want. But being a political leader, as many of you will know, is also a matter of hard choices and selling the case to the public. That’s not being done.” 

Travers also made a point about the way polls are used to justify spending decisions. “‘The NHS’ and ‘schools’ are always compared with ‘local government’,” he said. “If we had polls that compared ‘central government’ with ‘social care for children’ and ‘social care for the elderly’, I think the answers would be different!” 

He explained: “Tax has been fixed at 38% of GDP for a long time, and spending is always higher than that. That cannot continue indefinitely: unless politicians can address the question of cutting public spending in the long term, or pushing up taxes in the long term (a very painful thing to do), this problem will be with us: we want to have a bigger state than politicians are willing to tax us for.” 

The consequences of this, according to Travers, are set out in the panel. 

There is another problem for local government, he said – the sector has been a victim of its own success in efficiently managing the swingeing cuts forced upon it. He said: “There is [this] idea that local government, by managing efficiently and effectively and being able to reduce expenditure, finds itself being expected to make further cuts – whereas other parts of the public sector less good at doing this are ‘let off’. And I’m afraid that really is the case.” 

But maybe, he said, there are opportunities too. The financial situation could lend councils and the LGA the chance to argue forcefully for more power over local decisions and real devolution. He said: “Local government does have more robust financial management than central government; it also has electoral legitimacy. There will be a need for central government to devolve responsibility as the pressures I’ve described build up.

“The LGA needs to bid powerfully for more power and to convince the Treasury to stop Whitehall departments obstructing reform.”

Likely consequences of the tax and spend dilemma 

•  More pooled budgets

•  More charging for currently free services

•  More means-testing

•  A reduced overseas role for Britain

•  Less real-terms growth, even for the NHS and schools