Councils continue to suffer from the Labour legacy

Copied from Local Government Chronicle online
Next five years to see higher-than-expected cuts
10 December, 2014 | By Kaye Wiggins

Council spending is set to be over 4% lower than previously projected in both 2016-17 and the following two years, it has emerged, after George Osborne heralded “colossal” spending cuts.

Forecasts published by the Office for Budget Responsibility in the wake of the autumn statement last week showed “net current expenditure” by English local authorities would be £106.9bn in 2016-17, down from the £111.9bn forecast by the watchdog in March.

The OBR’s latest forecast for 2017-18 spending is £106.9, down from £111.6bn in its March forecast. In 2018-19 the OBR predicts spending will fall by £4.9bn more than it forecast in March.

The revised forecasts, which have emerged as councils await the publication of the provisional local government finance settlement for 2015-16, were due in large part to a steeper-than-assumed fall in central government grants to councils.

This came after the publication of the autumn statement revealed plans to accelerate public spending cuts in a bid to balance the budget by 2018-19 and generate a surplus by 2019-20.

The OBR’s gloomy forecasts also showed local authority current spending, excluding education, public health and housing benefit, would fall from 4% of nominal GDP in 2009-10 to 2.5% by 2019-20. In 2014-15 the figure is 2.9%.

In a speech on the day of the autumn statement, OBR chair Robert Chote said there was “no robust basis” on which to assume that cuts in overall public spending were “undeliverable”.

Mr Chote noted that councils were “in aggregate still adding to their financial reserves rather than running them down.”

The OBR’s figures showed non-schools reserves would rise from 10.7% of councils’ net current expenditure in 2009-10 to 24% in 2019-20. The watchdog has assumed councils will add to their current reserves by £1.5bn in 2014-15 and will continue to add to their reserves, but by decreasing amounts, until 2018-19.

The OBR reached its figures using Treasury policy assumptions for total spending after 2015-16, assuming grants to local government remained the same as a proportion of overall spending as they were due to be in 2015-16.

The figures emerged as Paul Johnson, director of the Institute of Fiscal Studies, said public spending cuts would be made on a “colossal scale” over the next five years. This could cause the “role and shape of the state” to change “beyond recognition”, he said.

Jon Rowney, London Councils’ strategic lead for finance, procurement and performance, told LGC: “Our early analysis suggests the pace of the cuts could be steeper and faster than previously thought.” The body had previously estimated London boroughs would see a 60% reduction in core funding from central government between 2010-11 and 2018-19.

Local government minister Kris Hopkins said: “What these figures actually show is a big increase in council reserves. Local authorities should of course maintain a healthy cushion when balancing the books but such substantial reserves are completely unnecessary and should be tapped into to protect frontline services and keep council tax down.

“Councils should be making creative use of reserves to address short-term costs, such as restructuring or investing now to realise savings in the longer-term.”

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