Last week’s spending review took some of the pressure off public service spending. The chancellor now plans to cut much less than he told us he would in March. The difference is so great that, where, until recently, we were expecting deeper cuts than in the last parliament, those announced on Wednesday will be nowhere near as severe. Less will be cut from public services over the next half decade than over the last.
Source: OBR Economic and fiscal outlook
Some services, like defence and the police, have found themselves inside the ring-fence once reserved for health, schools and international aid. Most of the unprotected departments have now seen the bulk of their cuts, with less to come during the rest of the decade.
The most obvious exception to this is local government. And boy is it an exception.
According to the IFS, local government funding is due to take the biggest hit overall. It also has more cuts to come in the next five years than the last. This comes after the National Audit Office has already expressed concern about the financial sustainability of more than half of local authorities.
The chancellor’s solution is to allow councils to raise more of their own revenue. He has already reduced the proportion of funding that local authorities get from central government and this trend is set to continue over the rest of the decade. Any shortfall can be made up from council tax and business rates.
At least, that’s the theory. The problem is, covering rising social care costs would need some big council tax increases. The extra 2 percent probably won’t be enough. Worse still, it may be raised in the wrong places. That’s the trouble with local funding. Rich areas have richer tax bases. Then there are the inevitable fears about postcode lotteries which, despite all the chatter about devolution, the British don’t really like very much.
But, while local authority leaders may complain that the sums won’t add up, the attraction of this approach for George Osborne is that it outsources much of the remaining austerity to someone else. He knows that there will have to be more tax increases to cover the cost of his deficit reduction. Either that or some serious damage to public services. This way local councils will have to make that call. Unpopular cuts or unpopular tax rises but either way, one step removed from the government.
Or at least for a while. The trouble with public services, though, is that they are part of a system. If things go wrong in one place it has an effect somewhere else. Fewer and less effective interventions by council social services will almost certainly increase pressure on the NHS, which is likely to struggle even with its extra funding. Averting a financial crisis in a local authority by cutting services might simply cause another financial crisis to appear in the local NHS trust.
The three things most likely to scupper George Osborne’s deficit reduction plans are lower than expected tax revenues, a failure to cut welfare costs and an almighty train crash at one of the junctions between the NHS and local authorities. When things like that happen, however much power has been devolved, people usually end up blaming the government.