The axe falls on local councils – accountants warn of financial collapse

I think I’d get on well with Rowena Crawford from the Institute for Fiscal Studies. We certainly share a similar gallows humour. Her presentation after the June budget had a chainsaw on the front cover and her analysis of the spending review has a picture of an executioner on the first page.

This table, showing the fiscal tightening by 2014-15, compares the spending review with the government’s June budget and Labour’s plans. It is immediately clear that George Osborne reduced the cuts to public services by hammering the welfare budget. 

Composition of the tightening in 2014-15

£ billion March 2010 Budget June 2010 Budget October 2010 Spending Review
Tax 21.5 29.8 29.8
Spending 50.9 82.8 80.5
       
Investment spending 17.2 19.3 17.0
Current spending 33.7 63.5 63.5
Of which:      
Debt interest 7 10 10
Benefits -0.3 10.7 17.7
Public services 27.0 42.8 35.7
       
Total tightening 72.4 112.6 110.3
% Spending 70 74 73
% Tax 30 26 27

The scale of cuts to departmental budgets is therefore down from the 15 percent threatened in the budget to 13 percent. However, once the NHS has been protected, defence cuts limited to 7.3 percent and eduction cuts to 10.8 percent, the remaining departments are left with some serious slashing to do.  

Some of the most severe cuts will fall on local government which has seen its grants from central government cut by 26 percent. With limited scope to make up the shortfall by raising council tax, local authorities will have to make some tough decisions. Chris Buttress, local government partner at PriceWaterhouseCoopers, predicted that half of the 490,000 public sector jobs will be lost from local authorities.

Councils will be making these savings just as demand for their services increases from people distressed by benefit cuts and job losses. There will little money to invest in reorganisation or training which might make their operations more efficient. Many will find themselves fighting a losing battle. Steph Beavis, of KPMG’s public sector practice warned that the scale of the cuts may be beyond the capability of many councils and that some risked financial collapse.

As Patrick Butler said yesterday, by reducing local government budgets so severely the government has effectively outsourced many of the spending cuts. Councils will have to decide what needs to be cut and how to do it. It’s no surprise then that three large London boroughs have announced plans to merge. They are part of a growing trend in the public sector to find economies of scale by combining operations. Stuff local democracy; when your back is to the wall you need to save money fast. If the London Borough of Fulsingminster is the only way to do that then so be it.

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3 Responses to The axe falls on local councils – accountants warn of financial collapse

  1. Richard J says:

    It’s an obvious point to make that councils, particularly in areas with high welfare needs, tend to be Labour-run, isn’t it?

  2. Pingback: The axe falls on local councils – accountants warn of financial collapse - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  3. I’m not sure its just the spending cuts that are being outsourced, there’s a wholesale flight from responsibility on the part of the political class. And in the name of the Big Society. I elaborate in my piece today at The Independent:

    http://blogs.independent.co.uk/2010/10/23/is-the-big-society-the-good-society/

    Note – I’ll be chairing the session “Is the Big Society the good society?” at the Battle of Ideas festival on Saturday 30 October.

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