The Budget’s great unloved

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You wouldn’t know it from the headline figures, but local government, along with some other unprotected and unloved public services, looks likely to face at least 50 per cent spending cuts between 2011-12 and 2017-2018

Table B.4 of the Budget Red Book points, like the Ghost of Christmas Yet to Come, towards a bleak terrain for unloved and unprotected public services.

‘Resource DEL including depreciation’ (broadly current expenditure) will be reduced by £3.8 billion in 2014-15 and £3.1 billion in 2015-16. However, the fall in 2016-17 is shown as £6.8 billion and in 2017-18 a further £8.2 billion.

This cut of £15 billion in the first two years of the next parliament was shown as only £12 billion as recently as the chancellor’s 2012 autumn statement.

Departmental Expenditure Limits (DEL) include current spending on the NHS, schools, international development, defence, police, fire and local government. For the foreseeable future, the NHS, schools, international development and defence equipment are protected from cuts.

As a result, any future reductions in DEL will fall disproportionately on the remaining services. This pattern of impacts was originally put in place in the chancellor’s 2010 spending review.

Over the full period from 2012-13 to 2017-18, ‘Resource DEL’ will drop sharply. Annually managed expenditure (AME), by contrast, will grow substantially. Unless this government or a different one after 2015 chooses to remove the ring-fences from the NHS, schools

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and the other protected services, the whole of this further cut in DEL will be borne by the minority of unprotected ones.

The government’s problem is that it wants to hold down Total Managed Expenditure but cannot control Annually Managed Expenditure, which largely consists of welfare, tax credits and debt interest. AME current expenditure will rise from £303 billion in 2010-11 to £414 billion in 2017-18.

DEL current spending, by contrast will drop from £326 billion to £299 billion in the same period. All these figures are in cash, so the real terms drop in DEL over this period will be close to 30 per cent.

Social security (with pensions as a major element) and debt interest are commanding a rapidly-growing share of total public expenditure. Within the declining share of DEL, the NHS, schools and international development are increasing as a proportion of the declining total.

With DEL current spending planned to decline to £299 billion by 2017-18, the unloved and unprotected, mostly local government, defence, the police, fire, transport, business services and justice face further cash spending reductions of 25 per cent in the next four to five years.

The unprotected services have become a safety-valve to allow AME and protected DEL to continue to grow within Total Managed Expenditure which is planned to fall in real terms. Over time, public resources will be further diverted from transport, housing, economic development, culture, the police and fire so as to continue to increase social security spending and debt servicing.

If capital spending becomes a greater priority, the impact on revenue spending within the unprotected part of DEL will be greater still.

It now seems likely that local government, along with some other un-ringfenced services, will face real terms reductions of at least 50 per cent in expenditure over the period 2011-12 to 2017-18.

If economic growth does not return in line with official forecasts, the chancellor would, if he is to continue to restrain the deficit, need to cut public expenditure to levels even below the figures announced yesterday. An historic change is under way which will radically alter the shape of the British state.

 

 

 

About Tony Travers

Tony Travers is director of a research centre at LSE, undertaking projects about councils, public finance and urban government. He has been a member of the Audit Commission, a King’s Fund associate and advisor to a number of Commons committees. Tony writes and broadcasts extensively on public finance, local government and policy issues.

6 comments on The Budget’s great unloved

  1. Jane Glaister says:

    Have you included the additional 3.7% National Insurance local government employers are likley to have to find themselves in 2016 as a consequence of the bringing forward of the flat rate pension?

  2. Peter Wylde says:

    This forecast is extremely interesting and important: always good to hear Tony’s analysis. There must come a point (which we’ve not reached yet) at which influential sections of the voting public (eg the middle classes, London and the South-East) notice a real degradation in local government services. In Councils like ours reductions are still at the level of skirmishing round externalisations, contract savings, efficiency savings, investing capital to save revenue, etc. None of this will meet the challenge of 50% real term reductions.

  3. Robin Bennie says:

    Thanks for this excellent article. Pity it won’t get wider circulation. I’d have posted it on FB. I would like to read your views on Cyprus and Jens Weidmann.

  4. Paul Woods says:

    Tony’s article highlights the complete disregard for local government services, the lack of understanding of the economic impact of this level of cut and the failure of the Secretary of State to protect his Department. It is clear that these cuts cannot be addressed by efficiency savings alone. Central Government must take more responsibility for the delivery of this level of cut and work with the sector to review and reduce its ask of Local Government in terms of statutory services to match the cut in funding.

  5. Mal says:

    It’s always easier to cut a budget that someone else is responsible for managing.

  6. Roger Latham says:

    An excellent analysis by Tony. Before I retired I used to rely on his analysis and that of the IFS to give me the true lowdown on the meaning behind the figures put out by ministers and the “spinmeisters”. Once again Tony has revealed the likely impact of the most recent statement on local government – a further 25% reduction. Not that this is guaranteed. It’s based still on the assumptions of the OBR that growth will recover next year. As that has been their basic pattern of assumptions for the last four years, pardon me for suggesting that they might be a little overoptimistic. For those of us who think we’re in for a very long haul recession, the 25% is going to get bigger as the Government’s failure to promote growth becomes more apparent.

    The consequence I fear is that several local authorities will ultimately find themselves in a position where they are effectively bankrupt. It may creep up on them slowly as planned savings and initiatives fail to deliver in total or on time, or it may come quickly if they face some local disaster perhaps as a result of extreme weather such as that we are currently experiencing, for example. But at some point a local authority, and perhaps a big local authority, is going to fail. The complacent and uncaring Secretary of State that we currently have has to think about what he is going to do when that happens. Is there going to be some kind of bankruptcy procedure, with perhaps local commissioners removing senior management and Members and then seeking other local authorities to take over services in the area – based perhaps on the American model for banking, or is there just going to be “make it up as you go along muddle” such as we saw when the banks went into crisis in 2007? I know what I would put my money on at the present. Perhaps this is one area where CIPFA needs to do some advance work about what will happen when a public authority is no longer financially able to provide services.

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