There’s a Cuts-Are-Working meme going around at the moment. David Cameron was at it again on Monday, claiming that his government’s strategy has been so successful that he plans to carry on cutting after the next election.
There are two angles to the Cuts-Are-Working claims. Firstly, that the economy is now growing at 0.8 percent per quarter, so cuts are clearly not holding back growth. That’s true enough but growth was always going to come eventually. The fact that it’s only in the last quarter that we have seen what we used to think of as normal post recession growth hardly counts as a triumph. Whether and by how much the Coalition’s cuts stifled the economy is one that will be debated for decades to come.
The second Cuts-Are-Working story is that budgets for public services were reduced but no-one really noticed. Such was the inefficiency in the public sector that percentage cuts in double digits didn’t affect the services used by the majority of people. This was reinforced recently by an ICM poll finding that, despite the cuts, 57 percent of the population thought services had stayed the same or improved. Stephanie Flanders concluded that perhaps there was a lot of spare capacity in local government after all.
As Nigel Stanley at Touchstone noted, if you dig into the survey’s findings, they are not quite so positive. The majority of those surveyed expect services to get worse before too long. Still, it is surprising that so few people seem to have noticed the reduction in public service funding.
Recent figures from the Local Government Association, showing what has happened to local authority spending since the last election, give us some clues as to why this might be.
Source: Local Government Association
The big spending reductions have been in those areas where people are least likely to notice, at least, in the short-term. The schools budget is mostly provided by central government and has been protected to a certain extent. Education cuts have therefore fallen in support and ancillary areas, like special needs, free school meals and adult education. The effects of cuts in housing, regulatory and planning spending may not be noticeable for a while. It’s only when people start asking why so many homes have been built on flood plains, or why so many bars with late licences have been concentrated in a single area, or why the dilapidated town centre is full of bookies and charity shops, that the reduction in planning activity becomes apparent. It’s usually those demanding the biggest cuts in public spending who also moan the loudest about the spread of betting shops, late night binge drinking and the concreting over of the countryside. By the time they complain, though, the damage will already have been done.
There is also evidence that some councils have started to dip into their reserves to keep some services running. The proportion of spending coming from reserves has been creeping up since the election.
It is hardly surprising the councils have done this, given that Eric Pickles told them to, but raiding reserves to make ends meet is only a short-term solution. Last year, the Local Government Association estimated that, at the current rate of use, these reserves will be gone by 2018.
None of this is to say that councils haven’t made savings through greater efficiency. Many have and the fact that they have managed to keep so many services going in the face of budget cuts is a fantastic achievement. But, as anyone who has tried to make cost savings knows, it gets harder each year. In year one you can get rid of all the nice-to-haves. In year two you can slash your training budget and fire all your contractors. In year three, things begin to get difficult and the things you have already cut start to have an impact on productivity. As I’ve said before, making efficiency savings in the public sector is extremely difficult for a number of reasons. Now we are into the fourth year of falling budgets, finding efficiency savings will get much harder. As IFS director Paul Johnson said:
To the extent that there was low hanging fruit to pluck in local government, the police and other services, it is likely to be gone by 2015.
In a report earlier this year, a report by the National Audit Office said that councils had only achieved half the savings they needed to make by the end of March 2015. And the second half will be a lot more difficult to achieve than the first.
It’s not going to get any easier either. As the IFS and Jonathan Portes have pointed out, George Osborne has kicked a lot of his deficit reduction into the next parliament. If this is a relief for some public servants but it’s only temporary. Another £25 billion (or possibly more) cuts are planned after 2015.
By focusing cuts on less visible services, dipping into reserves and making some efficiency savings, local authorities have managed to cope with major budget reductions without serious service collapse and a majority of the public not really noticing much change. Can they continue to pull this off? The Local Government Association thinks not. Last week its Conservative chairman warned the government that local authority finances are close to breaking point. Birmingham City Council has called on the NAO to investigate the future viability of local government after the commons public accounts committee warned that dozens of councils were close to collapse. Whatever clever strategies have worked so far, it looks as though time may be running out for many local authorities.
For the government, the immediate question is whether this is likely to happen before the next general election. A high-profile council running out of money, unable deliver key services and meet its legal obligations, would be a severe embarrassment to the Coalition just before a general election. Perhaps the government is being canny, calculating that councils can hang on in there for another year until it can win a new mandate for further cuts. Or maybe it is simply being reckless and will greet the collapse of council services with a shrug. Whatever the thinking (or lack of it) it looks unlikely that the government can continue to cut without people noticing for much longer.
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This is a good article, but comes at this from a mis-judged position. Local councils waste fortunes and often spend money poorly. What has happened for many councils is that they have tried to carry on as before, just with fewer staff. So your points about cuts here and how much harder they progressively come is correct. However, if councils stop providing some services or look to radcially re-structure by outsourcing – which the likes of Suffolk and Hammersmith have done very successfully, then major savings can be found. however, this requires strong leadership and councils who look to provide best value, rather than a multitue of inessential jobs for local people. Thus many councils, Birmingham being a prime example, will struggle to make much more change and the steps required are radical. Plus the Labour opposition is encouraging councils to over-spend and go bust as it will look bad for the Coalition – this is the usual game of playing politics that Labour are famed for, putting political partisanship above national or local interest.
Load of nonsense, clearly clueless about how local authorites work, nothing better to do than troll?
@CityUnslicker – Agree that local authorities often spend money poorly but so do most organisations. That said, councils are a lot more efficient than they were 10 years ago. The trouble with the recent budget cuts is councils are being asked to make productivity improvements way in excess of those made by most private sector organisations. It is extremely unlikely that they will be able to do this, so services must eventually suffer.
As for outsourcing point, the jury is still out, to put it mildly, on Suffolk’s outsourcing and the initial bold plans have been scaled back.
On your more general point, though, you are right. We need a complete re-think about how public services are delivered. It’s something I have been banging on about for some time now. This government is doing very little to bring that about. It is just cutting and letting people get on with it. Consequently, most public sector organisations are, as you say, just carrying on as before.
The last government’s Total Place initiative was a good start but it seems to have fizzled out. David Cameron has said we need a complete re-think about public services. He’s right but he’s done sod all about it.
Any evidence for your statements, or is it just an article of faith?
Particularly: “councils waste fortunes” – is that a metric fortune or an imperial one?
Any evidence to believe Suffolk is not going bust in 5 years, given the contracts they have signed?
ha! That Cityunslicker, what a card..
Outsourcing, as I have personal experience of with 2 major big name organisations, has lead to contract monitoring to the nth degree, with anything asked for being scrutinised and billed for from the tiniest bit of data upwards. This is not efficiency, this is piracy.
A major problem with all of this is that even in the visible areas, problems are being stored away for later. Housing is a great example since we are living with the consequences of previous cuts in housing budgets. Most of the current cuts are in maintenance rather than building (there’s no building budget left) – but that reduction in maintenance just brings close a day when either a pile more money has to be spent, or the buildings cannot be used…
The debate surely comes down to whether the electorate, or at least the tax-paying part of it, is prepared to see an ever increasing share of GDP being spent by the state?
Clearly successive governments have thought not, which is one reason why Brown ran a massive deficit even in the “good” years, rather than being honest with the electorate and taxing them at the requisite level to balance the books. My thanks to Ken Livingstone for pointing this out.
If we want a Scandinavian model of welfare and a big-state, then government should be honest and implement the 60% taxation that the model requires. A Danish friend who lives in the UK told me the Danes love their state and are happy to pay for it. He didn’t and left, which was his free choice, but the majority that stayed clearly like the system.
So come on Labour and Lib Dems: put your tax plans down clearly for the next election, stop the lie that we can have it all for nothing, and see if you are voted in. What’s stopping you?
P Hearn – I wonder if your Danish friend is the same as my Danish friend.
But you are right. Historically, spending has bumped along at somewhere just below 40% of GDP. The main reason it is higher now is because GDP has fallen so much. Even when the economy recovers and we get back to a pre-recession per capita GDP, 40% of GDP won’t buy us the level of services it once did because demand and debt interest will be so much higher. We either raise taxes or cut spending levels on public services.
It’s not just Labour and the Lib Dems that are obfuscating over this though. The Tories are pretending we can do it all with efficiency savings, so most ‘hardworking people’ won’t see any difference. Which we can’t.
“I wonder if your Danish friend is the same as my Danish friend.” I don’t know. I’ll ask him if he knows a blogger who styles himself ‘Rick’. My pal sells timber to the furniture trade, so maybe that helps you to narrow it down amongst your circle?
Might quibble a bit with your statement that “spending has bumped along at somewhere just below 40% of GDP” because the data generally say otherwise, but that’s not really my point.
Perhaps the best thing might be for governments to apply to themselves the same laws they apply to companies? Namely that continued loss making should mean they have to close down.
I agree the Tories also lie about spending, but in the sense that they’ve pretended to cut it with “austerity” when in fact they’ve merely attempted to trim the rate of increase, without much success.
Let’s open UK Plc’s books to public scrutiny permanently and constantly. The country should receive a monthly profit-and-loss account and balance sheet via the Treasury website. For Milliband and Cameron not even to be able to agree on the NHS spending facts at PMQs gets us nowhere beyond an inane shouting match.
If you want a big state, let’s get it costed, vote for it (or don’t), then get on with it.