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Chancellor axes ring-fencing of all but schools budget as local government suffers 26% hit to grant funding

The Chancellor of the Exchequer has announced a cut of 26% in local government grant funding, but removed ring-fencing from all but a 'simplified' schools budget which he said represented “a dramatic shift in the balance of power between central and local government.”

Announcing the details of the Comprehensive Spending Review (CSR) to the House of Commons today (20th October), the Chancellor said that the 'Departmental Expenditure Limit' (DEL) is to be cut by 28%, but smaller reductions in other funding streams will soften the effective cut to 26%.

The end of grant ring-fencing will come into effect next year, when the number of funding streams will be reduced from 90 to fewer than 10. On the government's figures, this will lead to £7bn per year being 'released' from ring-fenced grants each year.

However, the CSR did provide a number of small increases to local authority funding, including an £2bn for social care over four years (£1bn of which will be provided by the National Health Service), and an additional £650m per year to cover the voluntary four-year Council Tax freeze programme from 2011/12. The Chancellor also confirmed that councils will be given new Tax Increment Financing borrowing powers to fund local regeneration projects while the The Regional Growth fund was budget was set at £1.4bn.

The most significant cuts to spending announced were those for the building of new social housing, which is reduced by 74%, although councils will be offered other incentives to encourage the building of 150,000 houses over the next four years. Meanwhile new social housing tenants will now be expected to pay 80% of local market rents. The terms for existing tenants will remain unchanged.

Transport is also set to be a big loser, despite the confirmation that a number of large infrastructure projects will go ahead, including Crossrail, a new bridge over the Mersey at Runcorn, the refurbishment of the Tyne & Wear Metro and the upgrading of the A11 in Norfolk. The Bus Services Operators Grant will be reduced by 20%, while the Department of Transport is set for a 21% cut in its budget.

Schools have been spared significant spending cuts, with a commitment that spending levels per pupil would not fall below existing levels. However, funds allocated for school rebuilding projects amount to £15.8bn, 60% below that provided by the now-abolished Building Schools for the Future (BSF) programme, and will be focused on refurbishment rather than new building outside of areas with significant demographic needs.

The CSR also announced the creation of 16 new pilot 'pooled community budgets' areas, due to commence in April 2011. They are: Barnet, Birmingham, Blackburn with Darwen, Blackpool, Bradford, Croydon, Essex, Greater Manchester, Islington, Hull, Kent, Leicestershire, Lewisham, Lincolnshire, Swindon and a combined group of London boroughs: Westminster, Kensington & Chelsea, Hammersmith & Fulham and Wandsworth.

Responding to the spending review, Baroness Margaret Eaton, chairman of the Local Government Association, said:

“This spending review will hit councils and the residents they serve very hard and will inevitably lead to cuts at the front line. These are some of the biggest cuts in the public sector and we have to be honest about their impact.  Town halls will now face extremely tough choices about which services they can keep on running. These cuts will cause real pain and anxiety for millions of people who use the services councils provide, from keeping children safe to ensuring that streets are clean. Councils will do all they can to minimise the effect of these cuts and will build on their record of delivering new and better ways of doing things in order to keep public services running in these tough times. But savings on this scale are bound to hit services upon which people rely.

“The Government has responded positively, however, to some of the central arguments made by local government. The significant increase in funding for adult social care from Government and the NHS is good news and reflects something councils have been arguing for many years. There are also important moves towards much simpler funding mechanisms that will help councils do their job. The Government has eased burdens on local government, given us much greater freedoms and flexibilities over our budgets and taken a first step towards wider reform with councils in the vanguard of reforming the way the public sector operates.

“Town halls want to join up local public services to ensure we deliver the services residents demand and expect, but we can't do it alone. Councils want to work with other areas of the public and voluntary sector must break down wasteful bureaucratic barriers. Ministers must move much faster to redraw the way public services are delivered so the people we serve come before the interests of the Whitehall machine.”

See also...

The impact of the CSR: practice area by practice area
Philip Hoult, Editor of Local Government Lawyer, selects some of the key outcomes for local authorities and related public sector organisations – and the lawyers who advise them.

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