Laura Sharman 26 November 2015

Spending Review: Warning that councils at financial tipping point

Non-statutory council services are ‘seriously at risk’ from being axed, the local government sector has warned following yesterday’s spending review.

The Association for Public Service Excellence (APSE) said if the planned cuts to the DCLG’s budget was passed down to councils, many would reach their financial tipping point and only be able to provide basic services.

APSE chief executive Paul O’Brien warned: ‘This would be a catastrophic mistake for councils and their communities. It is often the non-statutory services, in our public realm, which residents really value and, which in the long-term, contribute to health, participation in sport and help with initiatives to tackle anti-social behaviour.

‘I am disappointed that the chancellor has not recognised the spend to save opportunities that local councils present. For example whilst extra funding on housing is always to be welcomed not a thin dime appears to be heading towards local councils when we are in dire need of more council homes.’

The Local Government Association (LGA) also warned that the spending review represents a 24% reduction in real terms to the local government grant, including the £1.5bn increase to the Better Care Fund.

Lord Porter, chairman of the LGA, said: ‘[The] Spending Review has handed down a difficult £4.1bn funding cut over this Spending Review period for our residents and comes on top of almost £10bn in further demand-led cost pressures facing councils by the end of the decade. The consequences for our local communities who will suffer as a result should not be underestimated.

‘Even if councils stopped filling in potholes, maintaining parks, closed all children’s centres, libraries, museums, leisure centres and turned off every street light they will not have saved enough money to plug the financial black hole they face by 2020.’

Business advisory firm Deloitte also expressed concern that the spending review did not consider how the financial failure of councils would be managed.

Mike Turley, UK and global head of public sector at Deloitte, said: ’Two new and significant funding formulas for local government and education have been announced, but both are silent on how they would deal with financial failure. Deloitte have estimated that over 200 public sector organisations are at risk of financial distress in this Parliament.

‘The education funding formula aims to reduce inequality but at the same time the new funding formula for local government, which allows councils to retain 100% of business rates, could increase inequality between rural and coastal councils and more affluent areas without recognising the need for redistribution.’

Chairman of the County Councils Network (CCN), cllr Paul Carter, also said he was expecting a ‘tough’ final settlement for local government.‘There are clearly further substantial reductions in core grants and counties will have to continue to make significant savings over the coming period,’ he said.

‘As ever, the devil will be in the detail and the level of reductions for counties will only be realised during the local government settlement.’

While Mr Carter said the CCN welcomed the responsibility for financing local government services shifting towards local areas, this should be accompanied by reforms to the way counties are funded.

He said: ‘We strongly welcome a commitment to rebalance support towards those authorities with social care responsibilities and unrelenting demand-led pressures. Reforming New Homes Bonus is part of the equation.

‘However, given the government’s optimistic projections on business rate growth, reform must extend to business rates retention and wider local government finance. Failure to do so will leave those authorities facing the biggest demand-led pressures facing the largest reductions in key frontline services.’

The District Councils’ Network (DCN) also said it would need to ‘delve beyond the headline announcement’ to find out what implications the DCLG consultation on local government finance will mean to the sector.

Cllr Neil Clarke, chairman of the DCN, said: ‘It is good news that chancellor has reconfirmed 100% retention of business rates and the DCN recognises the need to work collaboratively to deliver best outcomes for people and place.

‘Securing financial independence remains a core campaigning goal for DCN, and looking ahead the DCN will be looking to actively collaborate to debate how we can collectively use precious resources and build on districts’ track record of innovatively generating income for the benefit of the communities we serve.’

Read all our coverage of the spending review here.

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