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Local government finance settlement: A lesson in obfuscation

Source: Public Transport Executive Feb/Mar 2015

Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy (CIPFA), examines the hidden truth of this year’s Local Government Finance Settlement.

This long Parliament has now seen almost five years of cuts and reducing budgets for public services. Public servants across all sectors have become used to the narrative of austerity and yet despite five years of decreasing funds, as the Institute for Fiscal Studies recently pointed out, we are still only halfway through the deficit reduction programme. Throughout this Parliament the goalposts have been repeatedly moved as weak growth in the economy and in tax receipts have increased the amount of work needed to balance the UK’s books.

Whatever the causes of the government’s failure to meet its targets, for those of us on the front line of service delivery we can feel a little like Sisyphus, forever doomed to roll out further efficiency savings plans or changes to services to meet the demands of ever-reducing resources.

Though many parts of the public sector have so far managed austerity well, we must be honest that it would all be far more manageable if central government was not so dualistic in the way it presents these cuts, especially when it comes to local government. Despite nationally presenting the challenges of deficit reduction as a grave necessity for the future health of the nation, when unveiling what this means for local government budgets, the government have unfortunately mastered the art of obfuscation, muddying the waters when it comes to local government finances. The recent Local Government Settlement is a continuation of this trend.

When presenting the initial settlement in December 2014, the department boasted that overall ‘spending power’ for local authorities would only fall by 1.8% in 2015-16. But the department’s definition of spending power includes a whole range of things that would not normally be counted as local government resources, such as budgets pooled with the NHS for healthcare delivery or funds ring-fenced for specific projects. This means, even if you accept the premise of spending power, that should you count the total resources available to local authorities, such as council tax and business rates, the figures presented by DCLG are disingenuous, as much of what is included isn’t truly under councils’ control.

To better understand the actual fiscal picture facing local authorities and the people they serve, CIPFA dug behind the numbers. Three things emerged from this work.

First, if we accept the assumption that spending power better reflects the resources available to authorities, but strip out resources that aren’t truly under councils’ control, such as the Better Care Fund, we see the true drop in spending power will be 6% in 2015-16, three times that claimed by DCLG. This un-ring-fenced spending power measure gives a clearer picture of what resources local authorities actually have at their disposal.

Secondly, if you were to only look at central government settlement funding to local government – the historic measure of government support to councils – the actual reduction would be 14.6% in 2015-16, far more significant than presented by DCLG.

Finally, and not unusually, the distribution of resources is far from equal. Using CIPFA’s adapted spending power measure we can see that some of the larger authorities have seen total in-year reductions of over 10%. This is in contrast to district and shire councils, which will generally only see falls of 3% to 4%. In fact, at the top and bottom of the distribution spread, some councils are actually seeing increases this year of over 3% while some authorities in the north east and north west are losing almost 11%.

This 14% gap between the winners and losers of this year’s Local Government Settlement reflects the more general trend whereby metropolitan authorities have seen large cuts over the Parliament verses smaller decreases or even increases in funding for some district or shire councils.

Yet, none of this was presented by the government when it announced the provisional settlement in December or the final plans in February. Upon examination, the figures presented by the government actually appeared to try to hide the true impact of cuts upon some local authorities. And once you looked behind the opaque measurement of funding used by DCLG, you see the large disparity of impact across the country and between different types of authority.

The truth is that if citizens and councils are to have any confidence in central government and the way it allocates taxpayer money, we need to see an end to these disingenuous presentations of funding. We at CIPFA would call again for an independent body to be set up to allocate local authority funding in a fair, evidence-based and transparent way.

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