Cllr Graham Chapman, vice-chair of the Special Interest Group of Municipal Authorities (SIGOMA), looks at what the PM’s announcement of an increase in defence spending means for local authorities.
It is clear that last week’s sudden announcement of a ‘substantial’ increase in defence spending is not a well thought-through proposition. It bears all the hallmarks of policy led by politics and not, as it should be, vice versa. It allowed the Prime Minister to grab headlines at home, to try to appear as a statesman abroad, and to draw a much-needed dividing line with the Labour opposition in the runup to the general election. It was also clear that the funding of the package was more fag packet than forensic. Different numbers were bandied around including a claim of additional gross spend of £75bn by 2030 until it finally settled on an annual increase on current projections of £4.5bn by 2028-2029.
According to Downing Street, this funding would come from a £2.9bn reduction in the size of the civil service, and £1.6bn from the research and development budget.
What, therefore, are the implications for local government? First, we must decide whether the funding sources cited by Downing Street are credible or just a knee-jerk reaction when put on the spot by journalists, the IFS, and the Resolution Foundation. I am inclined towards the latter view on the grounds that had these been viable, considered options they would have appeared in the Autumn Statement when the Chancellor was desperately looking for headroom for substantial tax cuts and had to make do with a modest decrease in National Insurance.
If they are knee-jerk then, they are likely to be undeliverable, at least in substantial part. The reduction in R&D, though massively short sighted, is the most deliverable element. The reduction in civil servants at a time of mass hiring for immigration policy is probably for the fairies.
So, there is a strong chance a few of these billions may fall on ‘unprotected services’ – courts, prisons, further education, and local government.
To concentrate on local government; the total local government spend in the UK is in the region of £130bn. So, even if councils were to be landed with some of the bill for defence spending, in theory the impact would not be massive. In practice, however, it is a different story. This is because, according to existing projections derived from the Autumn Budget Statement, local government is already facing a 2.1% cut in its spending by 2028-2029, which rises to 4% in England once the Barnet Formula is accounted for. Therefore, what the defence spending increase could mean is that, in the first instance, any hoped-for reduction in this 4% can be ruled out. In the second instance, for English Councils at least, there is a strong possibility of more pain still, pushing the deficit to, say, 6%. This is particularly so in that the Government may take the view that, unlike the other unprotected services, councils have a separate income source in the form of council tax.
It has been suggested that this will lead to a further series of Section 114s. And it may well do. But Section 114s do not solve the problem. They are simply another way of confronting the same crisis. So, we are left with councils having to ration statutory services and being vulnerable to a plethora of appeals and judicial reviews; and/or yet greater calls on the council tax with all its regressive implications. This will be particularly so for upper tier councils whose statutory responsibilities for Children’s Services, Adult Social Care, and homelessness already account for over 70% of their outgoings. The hardest hit will be councils in deprived areas where the demand for statutory services tends to be the greatest and the council tax and business rate base, the lowest. It will not be levelling up which is on the agenda, but further levelling down.
There is a third, possibility, of course. That the Prime Minister may not be with us for that long and the mess which is the defence, local government, prison and further education budgets will be left for someone else to sort out. If that is the case, let us hope they have a better grasp of the problem and are prepared to confront some of the hard local government budget decisions over business rates, adult social care funding, and council tax reform which might bring some respite – with or without the increase in defence spending. And of course, there is levelling up to sort out while they are at it.
I wish them all the best.
