Councils should expect a cash-flat local government settlement and no additional funding following on from the Autumn Statement, the founder and chief analyst at Pixel Financial Management has warned.
In the wake of chancellor Jeremy Hunt’s fiscal update last week, Adrian Jenkins set out his predictions for the local government financial settlement, which is expected to be published at the end of December, in a webinar held today (28 November).
Jenkins outlined that instead of making additional funding available to relieve the pressure on local government, the chancellor decided to make a “big political choice” and cut taxes. He stated that according to the Institute for Fiscal Studies’ (IFS’s) analysis of the statement, it will mean a real terms increase in public sector spending of 0.9%.
So, considering spending for the NHS and schools, it translates to a 1.8% real terms cut every year for unprotected services, which includes local government, Jenkins explained.
“The numbers as they currently are, suggest real terms cuts in funding for unprotective budgets and local government. This is a similar level of cut that we saw in the period of austerity in the early 2010s.
“What this means for local government is a cash-flat settlement or period of settlements, if we assume that inflation is around 2%,” he added.
However, Jenkins did question whether the future government will be able to make these cuts “stick”.
From 2010 to 2018, there were big reductions in unprotected budgets, however data has suggested that there were some “relatively good” increases and improvements to funding between 2018 and 2022, Jenkins stated.
“But, between 2022 and 2023, things have worsened, where spending power for all types of budgets has been squeezed significantly by inflation.”
More funding ‘unlikely’
In addition, he outlined that the measures announced in the Autumn Statement makes it “quite unlikely” for the settlement to include extra funding for councils.
He said: “The 2024/25 settlement is already really good in cash terms and already very good relative to the rest of the public sector, with at least a 7% increase in core spending power next year.
“Now, I know that that’s not enough to match all your pressures. But if you compare it to the cash position and compare it to other parts of the public sector, we’ve got a fairly good settlement next year.”
Jenkins did note that in previous years there had been a couple of examples where the government announced money for social care outside of the fiscal statement, but this would be “unusual”.
Also speaking at the webinar was Dan Bates, director at LGimprove, who added to Jenkins’ sentiment by suggesting that the absence of additional funding for local government in the Autumn Statement will result in a heavier reliance on council tax. This will ultimately be at a cost for local authorities who have a low tax base, low tax base growth or are stranded on low Band Bs, he said.
“Council tax is really important. It will become even more important unless some future government decides to invoke a fair funding review and make a correction [to the system],” he commented.
Jenkins pointed out that further risks to local government funding from the Autumn Statement include very low growth, inflation being higher than expected, and the government not achieving its borrowing targets.
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