Why The Spending Review Means You'll Be Paying More Council Tax For Fewer Services

By Londonist Last edited 33 months ago
Why The Spending Review Means You'll Be Paying More Council Tax For Fewer Services
Photo by Joe O'Malley from the Londonist Flickr pool

Guy Ware, Interim Director of Finance and Procurement at London Councils, looks at what's in store for your local council over the next four years.

George Osborne is renowned for pulling rabbits from hats at the end of Budget speeches. His Spending Review speech, by contrast, was one huge rabbit — £27bn of extra spending that still delivers a budget surplus by 2019-20. So is that it? Is austerity over?

No.

Spending Reviews set four-year expenditure limits for each department (DELs). The chancellor didn’t mention it, but right at the top of the tree of pain was the local government DEL, with cuts of 56%. Thanks to the mind-numbing complexity of local government finance this doesn’t actually mean council budgets will be cut by 56%. But councils will lose almost a quarter of their government funding by 2020. On top of the 44% they lost over the last five years. The services cut the hardest in the last parliament will take the hardest cuts again.

What might that mean for London boroughs? At this stage, it’s hard to say precisely. The overall cut will be complicated by changes to the way the money is distributed between councils — which we’ll find out just before Christmas. Looking at the overall position though, London Councils now expects a funding gap of at least £2.7bn pa by 2020.

£2.7bn is roughly what the boroughs collectively spend on everything they do that isn’t education, social care or public health. So they could stop collecting the rubbish and sweeping the streets, close all the libraries, parks and leisure centres in the capital, stop housing the homeless, sack the entire “back office” and STILL have to cut care for people with mental health problems or physical disabilities to balance the books. They won’t, of course, but what they will be forced to do will feel pretty much like austerity.

Pay more for less?

Of course, councils don’t get all their money from the Government. After years of bribing and forcing councils to keep council tax down, the government is now encouraging an increase — albeit a highly controlled one — through a new 2% “social care precept”. In London that could put about 40 pence per week on the average council tax, and add up to about £55m pa. It mounts up over four years, but even then, we estimate it would pay for only about a third of the shortfall facing London’s adult social services. It might help, but it won’t solve the problem. So when your local council asks you to pay (a little) more for less, this might be why.

And then there’s business rates. At the moment the boroughs keep 30% of the rates they collect: 20% goes to the GLA and 50% to the government. By 2020, the chancellor confirmed, the boroughs and the GLA will keep it all. This offers huge opportunities. By then the total business rate income in London would probably be about £4bn higher than the cost of the services it currently funds.

Photo by Jason Cobb from the Londonist Flickr pool

This won’t solve the cuts problem — the government will transfer responsibilities to council budgets to match the increased income — but it might help fulfil councils’ ambitions to reform and integrate public services. For example, the government has committed to work with the mayor and the boroughs to develop better local employment support services, presently delivered centrally by DWP. This will help get more people into work and save money to the overall public sector budget. More initiatives like this, facilitated by the transfer of responsibilities, could really help deliver more for less, not less for more.

After 2020, councils will benefit in full from future business growth (and take the risk of recession). Boroughs will be allowed to cut tax rates to attract business and the mayor will be able to raise it to fund specific infrastructure projects.

Problem solved?

Like everything in the world of local government finance, it’s not that simple. The correlation between economic growth and the rates councils retain now is weak. The system is bedevilled with technical problems around valuations, appeals and the fact that the return for councils depends entirely on physical increases in business properties, not on improved productivity. Arguably this incentivises the wrong sort of growth for a crowded city heavily reliant on knowledge industries.

More fundamentally, the system doesn’t — and shouldn’t — allow individual boroughs to declare rates independence. Westminster currently collects £1.8bn in business rates each year, Lewisham just over £50m. There has to be some redistribution mechanism to balance the needs of different areas and the competing demands of strategic investment and current services.

A key question will be whether London can design and manage such a mechanism for itself — and whether the government will let it.

So austerity isn’t over. 2020 offers a glimpse of a hope of a possibility of better times. But there’s a huge amount of work — and council cuts — to go through on the way.

Last Updated 30 November 2015

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