Local government in 2020: A preview of the state to come

As the combined implications of fiscal austerity and demographics start to sink in, we are beginning to get an idea of what life after Peak State might look like. The Local Government Association has published a projection of council finances for 2020 and it doesn’t look good. Local authority revenues will fall, due to cuts in central government funding and limited scope to raise council tax or other funds from elsewhere. At the same time, cost pressures on councils, mostly due to the care needs of an ageing population, will increase.  As the cost of social care grows it will eat into the money available for other local government services.

By 2020, says the LGA, a funding gap of £16.5 billion will have opened up.

And, before anyone starts banging on about efficiency savings, the spending line in this model assumes that local authorities will improve their efficiency by 2 percent per year for the first half of the period and 1 percent per year for the remainder. Even with a certain amount of productivity improvement, then, the funding gap by 2020 is huge.

The other point to note about this chart is that, even if revenues stayed the same, a funding gap, albeit a smaller one, would still open up by the end of the decade. As I keep saying (ad nauseam, no doubt), the pressures on public finances were always going to increase over the next decade and we have known that for many years. The country’s weaker fiscal position just means that we have to face bigger problems sooner than we thought.

So what happens to council services then?

The LGA has removed spending on the police, fire service, schools and housing benefit from this model, as these have separate funding arrangements. They have divided the rest into what the authors describe as councils’ “unavoidable statutory obligations”, in social care and environmental services, and everything else.

As the cost of social care rises and takes up an ever greater share of the diminishing budget, the money left for everything else gets severely squeezed.

The green area on the graph covers the broad areas of Planning, Housing, Highways and Culture, Recreation and Sport. It’s not difficult to see which of these is most likely to get squeezed first. Filling potholes in roads will be given priority over libraries and leisure centres.

The LGA acknowledges that new initiatives like co-operation between councils might help but estimates that this would only plug around 10 percent of the gap. Unless councils get the power to raise more revenue, and voters are prepared to pay it, the only other option is to stop providing some services. LGA Chairman Sir Merrick Cockell concluded with this bleak prediction:

The lines on the charts in this report are the converging train tracks that will carry the most immediate and popular public services into history…

And that’s just by 2020. A number of studies predict that pressure on public finances will become severe during the 2020s. What will the LGA’s train tracks look like by 2030?

The LGA’s Chart 4 is specific to local government but the shape will be similar for other areas of state spending. Gradually, the rising cost pressures of demographics and, possibly, other known unknowns like climate change, will take up an increasing share of static or decreasing budgets, leaving less room for everything else. As Sir Merrick says, “efficiency savings won’t go close to solving this problem.” We will either have to get used to paying more tax or to a state that provides a lot less than it does now.

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11 Responses to Local government in 2020: A preview of the state to come

  1. Pingback: Local government in 2020: A preview of the state to come - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. B.O. Locks says:

    Why have local government at all? At the very least it could be shrunk to a much smaller fraction of its current size.

    Children’s services could be transferred to a national body run by central government. This national body for children’s services should ensure consistency of standards. Adult social care could be privatised. Charities could look after those elderly adults needing social care but who are unable to afford the fees of a profit seeking private provider. More familial responsibility for elderly care could also be encouraged. There are insufficient jobs for many households to have 2 full time wage earners so one could stay at home to look after elderly relatives in need of social care. Sports facilities, libraries, et al could be transferred to the voluntary sector. Localities that don’t want or don’t use these services would not have to pay for them and neither would they get them. That just leads roads and waste to be run by local government and a much smaller bureaucracy in our town halls as a consequence. .

    Britain’s business and industrial base has been declining over the last 30 years. It is no longer able to sustain those public services delivered by the State since the 2nd World War. It is very unlikely that Britain’s wealth creating base will grow in the next 20 years so we must accept a major decline in our living standards. Or have a world war. Nice. Forward to the Past

  3. Scary, disappointing – and overlooks the possibility of *effectiveness* “savings” dealing with the issue. I agree that efficiency savings will make little (zero or negative) contribution. Such a shame that so few in positions of “responsibility” grok the “effectiveness” solution.

    – Bob

  4. Clive Sparrow says:

    Levying local taxes is not an option for closing the funding gap. Local government needs to be smaller.

    Public spending increased from 12% of GDP in 1900 to around 47% now. During the 1980s it was cut down to 35% of GDP; however, it then increased rapidly after 2000. In the next Spending Review the Government must do what should have been done in 2010 – a review of spending that is genuinely comprehensive.

    All the easy cuts have now been made – the efficiency savings and the low-hanging fruit. But public expenditure must be reduced further and this can only been done through a fundamental rethink of what local councils should and shouldn’t be doing.

    The outcome must be smaller government.

  5. Steve Milton says:

    Looks like a lot of hard graft for the volunteers of the Big Society!

  6. Indy Neogy says:

    I’m sure it’s just me, but the costs on Chart 4 don’t seem to map well to Chart 3.

    • Rick says:

      Indy, I’m not sure what happened there. When I cut and pasted it the scales went all skweiff – there are lots of £60,000s! I’ll try and re-do it.

  7. Clive Sparrow says:

    A key challenge for Whitehall and local councils will be to genuinely break down departmental silos and instead align public services to local needs. The integration of health, social care, education, police and other mainstream services is an urgent priority, and to focus more resources upstream at the preventative end.

  8. BHPR says:

    If a bleak future is what you want that’s probably what you will get ! The underlying assumption in all of this is that Local Government is unable to innovate through adopting new technologies, new paradigms and new cultures. Isn’t it interesting that the private sector invests its way out of a recession while the public sector cuts it way out of one.

    How ? One part visionary and inspirational leadership plus one part strong governance for starters !

  9. Pingback: Society daily 27.06.12 - Care Home Fees

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