CSR: Local government faces toughest settlement

Chancellor George Osborne has confirmed that local government faces the toughest Whitehall spending settlement over the next four years, but will have greater control over town hall cash pots, following his Comprehensive Spending Review.

Addressing the House of Commons on 20 October, Mr Osborne announced that local government funding would be cut by 7.1% each year for the next four years.

Factoring in all grants from central government to local government, that means a 26 per cent overall decrease. But the CLG has just confirmed that, if the sector includes current Council Tax revenue assumptions, total real-terms reductions to all local government expenditure is expected to be around 14 per cent over the period.

Those figures compare unfavourably with ring-fenced NHS and international aid budgets, as well as limited cuts to schools, policing and social care budgets. Other Whitehall departments also face lower budget cuts – including a 6 per cent annual reduction for the Home Office and 5 per cent annual reduction for the energy department.

Only the Department for Business, Innovation and Skills faced cuts on the same scale as local government – around 7.1 per cent – the chancellor confirmed.

Mr Osborne said the tough spending environment for local government did, however, have an upside: what he claimed as a ‘dramatic shift in the balance of power between the centre and localities’.

As part of this deal, he promised to lift the ring-fencing of all local government revenue budgets from 2011, with the exception of local health, schools and policing cash pots. Overall, funding streams to local government would be cut from 90 to less than ten. Around £7bn of cash would be moved from specific grants to formula (un ring-fenced) grant.

He also promised around £650m in annual funding to cover his voluntary four-year Council Tax freeze programme from 2011/12, as well as new borrowing powers for local regeneration initiatives in the form of Tax Increment Financing.

Amid concerns about the impact of local spending cuts on NHS and care-related services, the chancellor found an extra £2bn for social care.

On welfare-related services, he said councils would be given greater control over the management of Council Tax Benefit, but they must help to reduce the overall bill by 10 per cent.

Mr Osborne also confirmed changes to the terms offered to new social housing tenants. Terms for existing social housing tenants and their rent would remain unchanged, he said, but new tenants would be offered intermediate rents at around 80 per cent of market rents.

The chancellor forecast this would allow localities to build up to 150,000 new affordable homes over four years. He also confirmed a £1.4bn Regional Growth Fund investment – some £400m higher than anticipated.