The state and local government

⁶⁰⁰

Under the New Labour government’s plans outlined in the 2009 Budget current spending was expected to grow by just 0.7 per cent a year in real terms during the next spending review period, April 2011 to March 2014. Total spending was expected to fall by 0.1 per cent a year as investment spending falls dramatically, albeit partly as a result of the Government bringing forward capital investment to act as a Keynesian demand stimulus. The Institute for Fiscal Studies (IFS) then forecast that current expenditure for central departments as a whole would fall by 2.3 per cent during the next spending review period with only the Department for International Development expected to see a real increase.⁶⁰¹ Extrapolation of the IFS figures suggested that if spending on health, education and international development was held constant at 2010-11 levels, all other departments would see spending fall in real terms at an annual average rate of 4.8 per cent. This would equate to a 13.7 per cent fall over the course of the 2011-14. Similar calculations have been used by the Conservatives to arrive at the 10 per cent cut for all departments except health and international development. Moreover, as Chapter 14 shows, local government will be the hardest hit by the £6.2 billion cuts announced on 24 May 2010.

It is also likely that the departments that invest heavily in cities, such as the Department of Transport, the Department for Business, Innovation and Skills, and Communities and Local Government, will see their budgets cut substantially. The Chartered Institute of Public Finance and Accountancy has already calculated the impact of a scenario in which public spending by local authorities is cut by as much as 40 per cent.⁶⁰² Moreover, as Kieran Larkin noted: ‘While the next few years will be difficult for local authorities, their dependence on central government grants means that it is in the period after 2011 that financial conditions will become especially constrained’. Though, as Larkin added: ‘Income could fall sooner if an incoming government were to hold an emergency Budget and reopen the local authority grant settlement for 2010-11’⁶⁰³: as in fact has now happened (see Chapter 14).

The 2009 Budget also ignored the TUC’s modest demand for a Public Investment Programme of £25 billion to 2010-11.⁶⁰⁴ Virtually nothing was provided for new council housing with only £100 million allocated to new energy efficient council houses and £400 million to kick-start building stalled as a result of the recession.⁶⁰⁵ The Chartered Institute of Housing (CIH) and the National Housing Federation (NHF) dismissed this investment as too little and too late. Sarah Webb, CIH Chief Executive said:
The infatuation with home ownership must be tempered. We need to talk less about housing as an investment and housing ladders, and more about ways to address waiting lists, ways to reduce housing as a polluter and ways to close the gap between the numbers of homes being built and households being formed.⁶⁰⁶
Moreover, there are 4.5 million people (1.8 million households) on a waiting list for social housing in England alone; and the money to councils would probably only have delivered around 900 homes.⁶⁰⁷ The rule changes announced by the then Housing Minister John Healey on 30 June 2009 – allowing councils to retain rent from council housing and receipts from right-to-buy purchasers to build 139,000 council homes in the next 10 years and end stock transfer – were therefore welcome.⁶⁰⁸ But these proposals and the Tories’ plans, even if implemented, would still have been totally inadequate⁶⁰⁹: because by 2012 it is estimated that 5 million people will be on the waiting list for social housing.⁶¹⁰ And David Orr, the NHF's Chief Executive, thinks house-building in Britain will "fall off a cliff" in 2010 due to a "catastrophic" combination of financial cutbacks and changes to the planning system. The poorest will be hit hardest with the number of affordable homes built falling by 65 per cent to 20,390 and those built by the private sector falling below 100,000 – the lowest level since 1924 with similar problems predicted for Wales and Scotland. Meanwhile, the Con-Lib Dem government has already announced £100 million will be cut from the National Affordable Housing Programme, which was meant to deliver 59,000 new social homes in 2010/11. The withdrawal of this funding will see plans to build another 1,453 social homes axed. Orr's letter to Grant Shapps, the Housing Minister, also states that the coalition government's decision to scrap regional house-building targets will leave councils free to reject all new social housing developments.⁶¹¹

George Osborne's June 2010 emergency Budget will also cut local housing allowance spending by £1.8 billion with the cap from April 2011 fixed at £250 a week for a one-bedroom property to maximum £400 a week for four bedrooms. Tenants will be refused benefit if they are deemed to be "under occupying" their property; and, from 2013, the annual rise will be linked to the consumer prices index, which is lower than the real price rises reflected in the retail price index - the current benchmark for benefits. People on jobseeker's allowance for more than a year will also see a 10 per cent cut in housing allowance. Hence, as Jeremy Corbyn – Labour MP for Islington North – points out:

The net result will see a form of social cleansing in central London – and the centre of other cities – as the poor are driven out of "high cost" housing areas. While the Con-Dems claim that their plan will force landlords to charge lower rents, anyone seriously involved in housing issues knows perfectly well what the real results will be. From the current situation where it is difficult for claimants to rent in the private sector, it will become an impossibility. Homelessness will rise and poverty will increase as the poorest and most vulnerable in our society are forced to pay the price of the bankers' excesses of 2008-9.⁶¹²
Moreover, in a throwback to the 1930s and Norman Tebbit in the 1980s, Work and Pensions Secretary Iain Duncan Smith suggests that we should remove long-term security of tenure from local authority tenants and force those looking for work to move elsewhere. Conversely, as Corbyn concludes, the only way to deal with the housing crisis in Britain is to: intervene in the market; fix and control private rents; introduce a regime that forces landlords to maintain and repair their properties correctly and guarantee longer-term security of tenure; and provide new council homes at a fixed, controlled rent with full security of tenure. Such a strategy would not only create jobs, it would give working people a decent place to live, and enable their children to enjoy good health and achieve more at school.⁶¹³

The 2009 Budget also required councils to save an additional £600 million by 2010/11: local government’s 3 per cent CSR07 efficiency target was increased from £4.9 billion to £5.5 billion with councils expected to find 4 per cent efficiency savings in 2010/11.⁶¹⁴ Moreover, as the LGA noted:
The Budget makes several references to the next spending review period, which is expected to cover 2011/12, 2012/13 and 2013/14. Spending assumptions for this period have been revised downwards from the 1.1 per cent real terms growth anticipated at the Pre-Budget Report to 0.7 per cent real terms growth.⁶¹⁵

The LGA also warned that further public spending squeezes would jeopardise local services: ‘…further efficiencies will not solve the pressures caused by cuts in funding.’⁶¹⁶ Hence, even if New Labour had been re-elected, there would still have been an even fiercer attack on public services than that proposed in the 2009 Budget. For, as John McDonnell – the Labour MP for Hayes and Harlington – said:

These cuts are catastrophic. People are worried by the combination of cuts and asset sales and privatisation. The chancellor announced £16 billion in asset sales and the privatisation of British Waterways, the Royal Mint and the Land Registry. On top of that there will be massive cuts in public expenditure. This is more severe than anything Margaret Thatcher did. If you combine the cuts with privatisation this is on a scale that has never been seen before.⁶¹⁷
Wales

The Welsh Assembly’s budget published on 16 January 2008 indicated that, under the final total Aggregate External Finance settlement, local government in Wales will receive £3.8 billion in 2008/09, £3.9 billion in 2009/10, and £4 billion in 2010/11 amounting to increases of 2.4 per cent, 2.4 per cent and 3.1 per cent respectively. The Local Government Minister, Brian Gibbons, said that additional revenue support grant totalling £4.7 million had been found since the provisional settlement, which would ensure that no authority in Wales received a settlement increase of less than 2 per cent and the average annual increase for Councils in Wales would be 2.4 per cent in 2008/09 after transfers. “I have listened carefully to the representations made by local authorities in Wales over the provisional settlement allocations”, he added, “within the context of the Assembly Government’s very tight overall budget settlement...’: ‘When the £642 million in specific revenue grants the Assembly Government is making available to local authorities is taken into account the total year-on-year increase is 3.3 per”. Brian Gibbon concluded that: “This settlement is a good and fair deal for both local government and council tax payers in a challenging period for public sector finances”.

Meanwhile the Welsh Local Government Association (WLGA) had submitted detailed written evidence on the Welsh Assembly’s Draft Budget in November 2007.⁶¹⁸ The Assembly’s final budget, according to the WLGA, was ‘the worst local Government settlement since devolution’ because ‘an uplift from 2.3 per cent’ in the draft budget ‘to 2.4 per cent’ in the final budget was ‘well below inflation’.⁶¹⁹ The annual inflation rate at the time was 4.4 per cent.

Brian Gibbons announced on 8 October 2008 that the local government revenue support grant would receive an overall uplift of £105 million for 2009-10. This additional resource, included in the Assembly Government’s budget, will be used to ensure that an average increase in the revenue support grant of 2.8 per cent with all local authorities receiving an annual increase of at least 1.5 per cent in 2009/10. The draft budget included an additional £10 million in revenue support grant for Welsh local authorities in 2009/10 and a further £10.5 million in 2010-11. This, according to the Minister, represented an increase of £105 million or 2.8 per cent next year and an increase of £112 million or 2.9 per cent after adjusting for transfers in the following year. Local authorities will also receive in excess of £650 million in specific grants in 2009/10 for priority areas such as the Foundation Phase and concessionary bus fares.⁶²⁰

The WLGA described the settlement as ‘completely inadequate’ because it ‘fundamentally fails to address the extreme pressures facing local government and provide answers’ to the following ‘key questions’:

• 
  Why is it that that the health service in Wales will receive an above inflation 5.3 per cent increase in their settlement compared to local authorities who will only scrape above half the NHS’s allocated increase?
  
• 
  Why is it that the Assembly Government which delivers no front line services gets a budget increase of 4.8 per cent?
  

• 
  Why is it that the chronic under-funding of social services continues to grow in Wales- despite the Assembly Government identifying an emerging £350m shortfall in funding in this policy area over the next 10 years?
  
• 
  Why is the gap widening in the funding of our children’s education in Wales compared to England where every pupil receives approx £400 more than their counterpart in Wales?
  
• 
  Why are some of the poorest areas of Wales such as the South Valleys, North West and Rural Wales receiving increases as low as 1.5 per cent?⁶²¹
  

A WLGA survey published on the 5 March 2009 into the effect of the economic slowdown on Welsh councils estimated that at least 700 jobs would be lost in 2009 as a direct result of the recession and budget pressures. During 2009/10, 11 authorities made jobs cuts with 300 across South East Wales authorities and over 200 in South West Wales. However, more than half of Welsh councils expected the recession to result in greatly reduced employment levels over the next few years, with up to 2000 redundancies likely before 2011. Almost half of the 22 Welsh councils had already reduced staff numbers by seeking voluntary redundancies or introducing a full or partial recruitment freeze, whilst others had undertaken strict reviews of every vacancy to ensure that filling the post is essential. The survey also found an overspend across every local authority budget for 2008-09 due to the economic slowdown, with every council experiencing additional demands for services, most notably around increased numbers of people seeking welfare advice and people making housing benefit applications. In addition, councils anticipated a loss of nearly £35 million of investment income during 2009/10 as a result of loss of interest, interest cuts and the impact of economic slowdown. Local authority incomes are falling significantly with 20 authorities across Wales already having reported a reduction in the number of planning applications being made. Asset sales are also falling through a fall in land value and developers’ lack of confidence in the current market and balances are being adversely affected through interest rate cuts.⁶²²

The 2009 Budget Report indicated a cut of £400 million in 2010-11, with worse to come in 2011/12 and beyond.⁶²³ Councillor Rodney Berman (Cardiff), WLGA Finance Spokesperson said



councils are already squeezing everything they can out of the system, making savings wherever they can and being forced into taking some very difficult and unpopular decisions to make ends meet, including job losses. We urge the Assembly Government to ensure that adequate funding is made available to local government to protect essential frontline services. There has already been a significant downsizing of local government services and staff levels over the last year and with budgets like these, we can unfortunately expect an even greater downsizing over the next few years.⁶²⁴
Moreover, ahead of its annual conference in June 2010, the WLGA revealed the findings of research by Deloitte showing the situation within the next four years will get much worse: large councils could go up to £120 million into the red as spending cuts bite and small councils could find themselves tackling deficits of up to £30 million with key services including social care being put at risk. And up to 4,000 jobs are now at risk in Welsh local authorities.⁶²⁵

Scotland

Finance Secretary John Swinney announced on 13 December 2007 in the Scottish Parliament that local government in Scotland under the final total Aggregate External Finance settlement would receive £11.2 billion in 2008/09, £11.6 billion in 2009/10, and £12 billion in 2010/11 amounting to increases of 4.6 per cent, 4.2 per cent and 3.4 per cent respectively following the tightest settlement from the Treasury since devolution.⁶²⁶ John Swinney also said there would be further additional funding for the Edinburgh Tram project. The Concordat with the Convention of Scottish Local Authorities (COSLA) also contained a commitment to reduce ring-fencing: which according to Swinney - unlike in England and Wales – gave Scottish local government greater freedom. To provide a fair comparison with 2007/08, and to maintain stability, the "floor" adjustment has been applied to the total core funding package excluding all the new specific grant funding streams that have been incorporated into the settlement from 2008/09. This mechanism ensures that all councils receive at least a minimum increase in grant. The “floor” has been set at 3.4 per cent for 2008/09, 3.0 per cent for 2009/10 and 2.5 per cent for 2010/11. Those councils which will benefit directly from this measure, are: in 2008/09, Eilean Siar, East Ayrshire, Inverclyde, the City of Glasgow, West Dunbartonshire and South Ayrshire; in 2009/10, Eilean Siar, Renfrewshire and the Shetland Islands; and 2010/11, Eilean Siar, Renfrewshire, the City of Edinburgh, Shetland Islands, and East Dunbartonshire.

In 2007/08 three quarters of local government funding was not ring-fenced. Under the Concordat with COSLA non-ring-fencing was extended to around 90 per cent. A relatively small number of specific grants remain ring-fenced. The largest is Police Grant which, in 2008/09, amounted to £0.6 billion and included an element for increased police pay. The list of ring-fenced grants also included the new 'Fairer Scotland Fund' for improving lives through regenerating communities, which was £145 million in 2008/09, and was the result of rolling up seven previous smaller grants – including the former Community Regeneration Fund.

There is also agreement with COSLA:

• 
  to reduce class sizes to a maximum of 18 in primaries 1 to 3 as quickly as possible
  
• 
  to make substantial progress towards a 50 per cent increase in pre-school entitlement with access to a nursery teacher for every child
  
• 
  to extend entitlement to nutritious free school meals to all primary and secondary schools pupils of families in receipt of maximum child or working tax credit
  
• 
  to provide allowances for kinship carers of "looked after children"
  
• 
  to improve care homes to increase the current standard payment levels for free personal care
  
• 
  to deliver an extra 10,000 respite care weeks per year at home and in care homes, along with additional resources for local care centres
  
• 
  to freeze council tax rates at 2007/08 levels and reduce business rates for the smallest businesses under the Small Business Bonus Scheme
  
• 
  to increase third sector funding to over £93 million – of which £30 million will for the Scottish Investment Fund – over the next three years
  

The response of COSLA President Pat Watters was as follows:

Whilst today's budget in terms of cash is not brilliant COSLA believes that it is the best deal that can be delivered at the moment. This deal signals the start of a new relationship between the two spheres of government in Scotland and local government through COSLA is looking at the long term rather than immediate short term benefit. The package has been agreed within a tight financial context but the role that local government plays in the governance of Scotland has been substantially enhanced and the decline in local Government's share of total expenditure has been halted.⁶²⁷
Therefore COSLA at this point – unlike the LGA and WLGA – was much less critical of the Scottish local government settlement, which was related to the fact that some SNP policies are to the left of New Labour’s. For example, the SNP opposes Trident replacement and the Iraq war; and they have abolished higher education fees and prescription charges. The SNP was also, as shown above, extending the provision of free school meals. But this does not detract from the contradictions and problems generated by the SNP mix of policy positions evident already: for instance, the defects of their Local Income Tax proposals and failure to eliminate PFI.

The SNP outlined proposals to replace the PFI with a ‘Scottish Futures Trust’ in the summer of 2006, while still in opposition. But, at the end of 2007 the SNP government indicated that the Futures Trust would no longer be a public body; and will act as a private conduit for private investment, delivered by equity bureaux, banks and the capital markets – the very institutions, in fact, that finance standard PFI schemes. Moreover, as Mark Hellowell noted in 2008:

The current PFI programme has been allowed to roll on…schemes on the brink of reaching completion have been allowed to proceed. A contract for a £200 million schools scheme for Dumfries and Galloway, for example, was signed in January with Government approval. For less advanced schemes that were earmarked to go ahead as PFIs, most will go ahead, but bidders will be asked to re-submit proposals on the basis of so-called ‘Non-Profit Distribution’.⁶²⁸
The SNP, as all the main parties do, supports the neo-liberal agenda. Hence the problems of local government in Scotland, England and Wales will not begin to be solved unless socialist policies of the kind outlined in Chapter 14 are adopted and implemented.

The Local Income Tax (LIT) proposed by the SNP would have applied at the starting, basic and higher rates, to all taxable income except savings income, and been capped at 3 per cent; and they would have continued to levy a property tax on second and empty homes. Their ‘freeze’ on council tax rates in the short term was to avoid interim increases. However, the Institute of Fiscal Studies estimated that, if the SNP’s LIT had been in place in 2006-07 and set at its maximum level by all Scottish councils, it would have raised around £1,250 million. The SNP’s proposals would therefore have constituted (at best) a £450 million tax cut and left a corresponding revenue shortfall. This estimate assumes that the savings from not having to pay council tax benefit (which would accrue) centrally, would be returned to Scottish local government: but if this was not the case, the tax cut would have been £830 million. The SNP argued that this £450 million reduction in Scottish local government spending could be absorbed with no loss of quality in public services, if councils made efficiency savings of 1½ p.a. for 3 years. However, precedent suggests this would have been difficult, particularly since this would have be in addition to any efficiency savings required by the central state.⁶²⁹ Moreover, as Vince Mills points out, LIT would have to have been combined with a wealth tax because the very wealthy accrue wealth in ways other than earned income. The impact on local government finances would also have hurt working-class Scots if the £400 million in council tax relief currently transferred to Scotland - as Westminster argued – had ceased under the SNP’s LIT. The Single Outcome Agreement with COSLA, which reduced ring-fencing of government grants to local government, was also part of the agreement to freeze council tax during the transition to the SNP’s LIT. Thus councils in Scotland have pushed spending where it gets the greatest political rewards, in the areas where people are most politically active and most likely to vote. For example, according to the Scottish Parent Teacher Council, areas of low priority – such as adult learning and caring projects for disadvantaged groups – have already seen a disproportionate reduction in funding.