Austerity II: The Devolution

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.

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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.

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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.

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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.

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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.

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7 Responses to Austerity II: The Devolution

  1. Truth to Power says:

    But George Osbourne is not cutting ‘Local Goverment Spending’ he is changing ‘Local Goverment Spending’Funding’. He has cut the supply of funds from the center and is expecting the council’s to raise the shortfall from businesses and the people.

    He is effectively raising extra taxes but calling them something else. It is all presentational … you don’t get something for nothing.

  2. Truth to Power says:

    But George Osbourne is not cutting ‘Local Goverment Spending’ he is changing ‘Local Goverment Funding’. He has cut the supply of funds from the center and is expecting the council’s to raise the shortfall from businesses and the people.

    He is effectively raising extra taxes but calling them something else. It is all presentational … you don’t get something for nothing.

  3. P Hearn says:

    “…people usually end up blaming the government.”

    So true. Heard someone on the radio this morning [effectively] blame the government for the fact that kids are fat. Apparently we need a new tax on fizzy drinks, because people are now too stupid to be responsible for themselves or their children.

    At this level of dependency, it’s hard to see what any Chancellor can do that won’t incur the wrath of someone who thinks “government” should be doing it

  4. colinnewlyn says:

    It’s easy to see the politics behind these decisions but, try as I might, I can’t see how they can work. It could be that Gideon knows something that we don’t but I think it’s more likely he simply hasn’t been interested in thinking about it. Wilful ignorance seems to be the modus operandi of this government

  5. Truth to Power says:

    It is quite fascinating when people try to understand government funding and accounts. Because of Resource Account Budgeting (RAB) (https://www.gov.uk/government/publications/how-to-understand-public-sector-spending/how-to-understand-public-sector-spending), and accruals, and having the flexibility to move items of expenditure between departments, costs expressed in actual values or Net Present Value (NPV) (https://data.gov.uk/sib_knowledge_box/discount-rates-and-net-present-value). Means that expenditure that is shown within this financial year, may be caused by overspends from previous years, together with expenditure and commitments made this year moved into future years (as we have seen with overspends in defence causing bow waves of overspends which cascade into future years with programme delays). Furthermore spending commitments made by one department (such as the cabinet office) get transferred into another department (say defence) without the funds necessary for that commitment, hence, what appears to be a saving in one department would be a cut within another. Their strategy is to confuse and they are very good at that.

    Governments have also become adept at transferring costs onto others for example university education onto the younger generation (university loans/fees), council funding (as mentioned within your blog), Public Finance Initiatives (PFI), Northern Power House, etc.

    Government and Public sector departments are autopoietic systems. Their sizes, complexity and bureaucracy changes to consume available resources. Spending cuts cause those departments to conceal their true spending and protect themselves against cuts. As you are beginning to realise funding cuts from the centre, trigger alternative forms of fund raising at the peripheries. In the end the public are forced to pay more.

    The solution is not austerity, it is to question the roles of government and public services, and to re-define the boundaries between the government, public and private sectors. The current scope of the departments and the services that they provide spread across all three domains. Government consider all three domains to be similar (which they are not), and are forcing them to operate on commercial lines, and use corporate models. Forcing all of these entities to function as a corporate businesses is often the root of the problem – often increasing risk, creates bully cultures, creates concealed debts, disengagement and rogue behaviours of staff, as we partly saw with Barings Bank. Government departments should be ‘business like’ (professional and efficient) but most certainly not ‘like a business’ (a corporate entity).

    Many of the problems are because departments are run by politicians (who’s only experience, if any, is the private sector), and the loss and diminution of senior civil servants (who have been replaced by generalists and managers from the private sector). The primary objective of a politician is to be popular (to win votes), and ensure that his/her party remains in power, and are highly influenced by lobbying. The true role of the politicians is to set policy, with the Senior Civil and Public Servants implementing those policies using their departments.

    The politicians have now removed the meritocrats (who may offer alternative views – as we saw with David Kelly) and have a deep understanding of their departments, and have replaced them with generalists appointed through patronage and nepotism (usually Oxbridge graduates), who are subservient to their political masters. On the face of it they are professional and confident, but beneath that they are driven to advance their positions, and lack the necessary leadership skills. The paper ‘the process of white-collar crime: An examination of Enron, Barings Bank and other corporations’ https://www.y2cp.com/ressources/publications/articles/carey_stevens/white_collar_crime.pdf) explains the psychopathology of their behaviours. These behaviours are hidden from the public view, however, occasionally a mishap occurs and they become visible within the public domain, examples being, bullying and whistleblowing within the NHS (http://www.telegraph.co.uk/news/health/news/11398148/The-NHS-whistle-blowers-who-spoke-out-for-patients.html), together with staff surveys which show poor engagement, bullying within the civil and public services (which are seldom understood, excuses are made, and they are swept under the carpet).

    Vested interests and feather bedding means that it will be extremely unlikely that we shall recover from this situation.

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