The chancellor’s announcement was an election-focused plan with elements of creative accounting, argues Richard Harbord. Section 151 officers will need to see more detail and timescales as a matter of urgency if they are to complete satisfactory budgets.
What do we want? We want certainty. Seasoned watchers of Autumn Statements, Budgets and Spending Reviews will know that they do not essentially aid certainty. Much of the devil is in the detail and so they need time to be unpicked. There is always the risk that new money turns out to be recycled from previous announcements.
In this article, I want to look at the changes in the Autumn Statement for local authorities. However, anything that leaves citizens 7% worse off in real terms will have an effect on councils both in the payment of statutory demands and discretionary spending such as on leisure.
For local authorities coping with the current 11.1% consumer price inflation and, in most cases, just completing budgets for 2023/24, there is a great need to know the timetable. When the local government settlement will be announced and go out to consultation is of prime importance, and I can find no clarity on that.
In 2018, the then Ministry of Housing, Communities and Local Government set up a Fair Funding Group, and I was a participant. A lot of work was undertaken, and a Treasury-endorsed paper produced. That was all lost in the 2019 general election and sunk without trace. In 2021, the Fair Funding Group was reformed but has not met despite the need for urgent work on this issue.
There are two years where spending continues to increase and then two years of severe cutbacks. It is, of course, entirely coincidental that the timing coincides with the two years to a general election and the two years after.
Four-year plan in two parts
The chancellor’s unusually long speech included announcements on social care funding (plus a delay to the care reforms), additional “flexibilities” on council tax, business rate cuts, additional schools funding, a commitment on levelling up funding, a social rent cap and a watering down of investment zones.
His Autumn Statement lays out a four-year plan in two distinct parts. Broadly, there are two years where spending continues to increase and then two years of severe cutbacks and a reduction in government debt. There are projected reductions of spending of £22bn per annum at this point. It is, of course, entirely coincidental that the timing coincides with the two years to a general election and the two years after. It also means that the latter two years will be subject to change by the incoming government.
The Office for Budget responsibility (OBR) sees GDP falling by 1.4% in 2023 and confirms that we are currently in a recession. It does, however, predict that the measures announced by the chancellor in the statement will make the recession shallower. It contains £55bn of “stabilisation“, half from taxation and half from spending.
Under the taxation proposals, there is a section on business rates. The Labour Party is anxious to abolish business rates, but this statement indicates no immediate changes to the structure of the tax. There will, though, be a £14bn cut in business rates over the next five years. Two thirds of properties will pay no more next year than last.
A new transitional relief scheme was announced and has gone out to consultation, potentially benefiting around 700,000 business. It will be important to know how this loss of funding for local authorities is made up. Interestingly, the Autumn Statement says this concludes the commitment to review business rates. The reliefs now proposed are detailed and are included in a supplementary paper.
For the remaining two years of the Spending Review the increase in departmental budgets already set out will be protected. In each of the following three years there will be 1% growth in real terms. The Institute for Fiscal Studies (IFS) says, however, that this will equate, outside Education and the NHS, to a 0.7% real-terms cut.
Over 600,000 more people on Universal Credit are to be asked to see a work coach to find ways of increasing their hours or earnings.
In Education, the government will invest an extra £2.3bn per year in schools for the next two years. The IFS says this will restore schools funding to the level it was at in 2010. We await the detail, but much depends on the level of pay increases. The promised 5% for teachers has to be found from existing budgets.
The statement says an extra £2.8bn next year and £4.7bn the year after will be made available [for social care]. But, on examination, the increases proposed are £1bn next year and £1.7bn the year after.
Creative accounting
In the social care sector, the announcement incorporates a degree of creative accounting. The statement says an extra £2.8bn next year and £4.7bn the year after will be made available. But, on examination, the increases proposed are £1bn next year and £1.7bn the year after. The balance is found from the savings local authorities make from delaying implementation of the Dilnot reforms for two years and “increased council tax flexibilities”, which refers to the raising of the referenda limit to 5%.
This means that 66% of this money is dependent on local authorities raising council tax to the new limit and using it for social care. I believe that is unlikely to happen. There are also 165,000 vacancies in social care and the rise in the minimum wage to £10.42 an hour will have a considerable impact. The statement says the increase will fund 200,000 more care packages.
The government also undertook to provide a response to the recent Children’s Service Review by the end of the year. That review contained major resource needs.
I note the Institute for Government feels that this proposed additional resource should meet current needs. I am very doubtful that this is so.
In terms of infrastructure expenditure, nothing is cut for the next two years and investment will be maintained in cash terms for the following three years. Round two of the levelling up fund will continue with at least £1.7bn, thus matching round one.
The approach to investment zones is to change to focus on our “research strengths to help build clusters for our new growth industries”.
The social rent cap is set at 7%, rather than the 11.1% increase that would be expected based on the September CPI inflation rate plus one percentage point.
After the last few weeks of confusion and political turmoil, it is helpful to have a plan. However, section 151 officers will need to see the detail and the timescales as a matter of urgency if they are to complete satisfactory budgets.
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Longer-term uncertainty
This is really a two-year plan that takes us to the next election. There can be no certainty beyond that event. It therefore includes the energy cap and other considerable spending proposals in the next two years, with savings rising to £40bn in 2027/28.
The big question marks currently involve interest rates and pay awards. Pay rises in the last 12 months in the private sector have averaged 6.6%, compared with 2.2% in the public sector. Given the amount of unrest and the level of current pay demands, there must be a doubt over the sustainability of this position. Failure to meet demands at a “reasonable“ level will exacerbate staff shortages.
The social care position is not entirely as it looks. I know a number of councils that were signalling reluctance to increase council tax this year by even 3%, so it will be interesting to see how many opt for 5%. Failure to use this “flexibility“ will lead to criticism from central government.
This all also has to be set against the fact that the average for all authorities shows spending is around 17% less than 2009-10 levels in real terms.
For second-tier authorities there is no additional help and the prospect of pay rises, inflation and less discretionary income makes for gloomy reading.
The Dilnot reforms have been put off for two years but there is no mention of proper funding for them on implementation. Implementation this autumn was proving difficult because of lack of funding.
After the last few weeks of confusion and political turmoil, it is helpful to have a plan. However, section 151 officers will need to see the detail and the timescales as a matter of urgency if they are to complete satisfactory budgets. Given the level of uncertainty, the Section 25 statements will need even more careful consideration this year.
Richard Harbord is the former chief executive of Boston, Richmond and Hammersmith & Fulham councils.
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