Gavin Barwell is MP for Croydon Central. He blogs here.
In his Emergency Budget in June, the Chancellor set out his plan to accelerate the pace of deficit reduction through a mixture of spending reductions and tax increases (about £4 of the former for every £1 of the latter, in line with the international evidence of what works best).
Local government shared in the boom years along with the rest of the public sector so it is quite right that it should play its part in clearing up the mess. The Comprehensive Spending Review included a 26% reduction in central government funding for local councils over the next four years. Based on the Office for Budget Responsibility’s assessment of the likely level of Council Tax increases, this would translate into a 14% reduction in council revenue budgets – higher than the reduction for central government as a whole but less than the reduction for unprotected government departments.
This afternoon, Eric Pickles will be announcing how this overall reduction will be split between the 353 councils in England. And, as always in the murky world of local government finance, the devil is in the detail.
In Eric and his excellent Special Adviser Sheridan Westlake, we have two people who understand that detail. They know that the system which they have inherited from Labour to determine what share of the cake each local council gets is badly broken.
The first problem they face is that some councils are much more dependent on central government funding than others. In the current financial year, 84% of the London Borough of Tower Hamlets’ revenue spending was financed by central government; at the other end of the scale, just 33% of the revenue spending of Chiltern, East Dorset and South Bucks District Councils came from government.
This means that if the government were simply to salami slice a given percentage from each council’s grant, it would have much more impact on the spending of some councils than others. Say the reduction next year is 10% – assuming they all freeze their Council Tax, Tower Hamlets would see its revenue spending reduced by 8.4% while Chiltern, East Dorset and South Bucks would see their spending reduced by just 3.3%. In the interests of fairness, I suspect the Government will want to ensure that all councils face broadly similar reductions in revenue spending power.
But the other challenge the Secretary of State faces points in a different direction. Over the last five years, local government as a whole has seen modest real terms increases in central government funding. Look at the figures in more detail, however, and you see that some councils have had their funding cut, whilst others have had big increases. And, contrary to the narrative that Labour simply shifted money from the South to the North, the pattern of winners and losers defies explanation.
Looking at the London boroughs, the metropolitan districts and the unitary councils, which are broadly responsible for the same functions and hence comparable, research by the House of Commons Library shows that my own council – the London borough of Croydon – has, along with 32 other councils (most of them London boroughs or unitary councils in the South but also the likes of Gateshead, Liverpool and Newcastle), seen a real terms cut of 2.2% over the last five years. At the other end of the scale, Blackpool has had an increase of 10.9%, Telford and the Wrekin 13.3%, Torbay 15.7%, Blackburn with Darwen 16.7% and Rutland a huge 25.8%. Is the population in Rutland increasing faster than in Croydon? No. Is Croydon becoming more affluent, while Rutland is becoming more deprived? Hardly. To quote from an excellent report by London Councils entitled Four Block Muddle, the current system “is inherently unstable and unpredictable, generating fluctuations in grant allocation that defy logic”.
The people who elected me are hoping that this government will reform that system, replacing it with one that is fair and transparent. And indeed the Coalition Agreement commits the Government to “a review of local government finance”. But that is going to take time. In the meantime, those of us who represent councils which have already seen reductions in the levels of central government support in the boom years have to ask whether it is fair that our councils now see a similar reduction in spending power to those who enjoyed years of plenty.