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…
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.