As Osborne’s budget unravels, Clark must ensure councils do not pick up the slack

Copied from Local Government Chronicle online  4 APRIL, 2016

It is not surprising that Iain Duncan Smith’s departure precipitated some fast back-tracking by George Osborne on key aspects of his Budget.

To go from saying that “cutting £4.4bn from the welfare budget, including personal independence payments, is absolutely essential for meeting our financial obligations” to “we’re not proceeding with these measures and we’re not proposing any alternative savings” in the space of 48 hours is breath-taking.
There is, however, another budget issue which has got slightly lost in the IDS commotion. Last October, Mr Osborne announced the move to full business rates retention to the Conservative Party Conference. More detail was provided in the November autumn statement.
Given the government’s track record in these matters since 2010, it is little wonder that serious questions were being asked as soon as Mr Osborne announced the extension of the small business rate relief thresholds and the intention to change the inflation index from the retail to the consumer prices index. The Treasury said that local government would be compensated and the increase to the threshold would be at “full exchequer cost”.

Suspicious? Sceptical? You bet! The antennae twitched vigorously when the Treasury seemed unable or unwilling to answer questions about how this compensation would be determined, distributed and delivered.

So, at the first opportunity, on the Monday following the Budget and Duncan Smith’s resignation, I asked the communities secretary, Greg Clark, how this compensation mechanism was to work.

I received an emollient response; it would be a section 31 grant for business rates reduction. Mr Clark added: “When it comes to the full retention of business rates by 2020, the forecast is that there is £26bn of revenue, and councils retain £13bn. Therefore, there are transfers that need to be made in, which will be taken into account by the end of the process.”
Subsequently in the Budget debate I intervened on Mr Clark to confirm that that grant will not come from any other part of local authorities’ budgets, and if it is not, to point out precisely where in the Red Book it says how that is funded.

Mr. Clark responded said it was on page 84, line 15 but later in the debate I pointed out that this section refers to the cost to the government of the small business rates relief changes; it does not show how local authorities will be compensated for that loss by a section 31 grant.

“Will someone please show me where in the Red Book the section 31 grant is described as compensating local authorities?” I asked.

Following the debate Mr Clark has written to me and assured me that councils will be fully recompensed for the extra small business relief up to 2020 and that this will be dealt with in the supplementary estimates.
More worryingly, on the change between the RPI and the CPI, which comes into force in 2020 after grant has ended, what mechanism can the government find to compensate authorities for that change? Given that it will vary year on year, how can changing the devolved powers to local authorities be done on a yearly basis? Perhaps this is one change where councils will be left out of pocket.
And, what does the four-year settlement offered to councils for the rest of the Parliament now actually mean? Where is that left by the £3.5bn of efficiency savings the chancellor announced in his Budget and the £4.4bn of extra savings that presumably have to be found now that the PIP cuts are not being carried through? That’s an extra £7.9bn to be found. I have asked for a categorical assurance from ministers that this will not affect the four-year settlement offered to local councils.
And what about the already ravaged ring-fenced public health grant, which has seen a one-off cut of £200m this year? With a further £600m more in real-terms cuts by 2020 already planned, will the grant face any further cuts to help fill the £7.9bn black hole? No answer so far.

The harsh reality is that Mr Osborne’s budget has already unravelled and local government spending, yet again, could bear the brunt of further cuts.

We should all be shouting out loud now to strengthen the hand of the communities secretary in resisting any attempts to make local services for the elderly and disabled a substitute cut for those welfare cuts now rightly abandoned.

Clive Betts (Lab), chair, communities and local government committee

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