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.