Tough spending round looms as Osborne freezes pay and cuts grant.
Councils have been told to prepare for Whitehall grant cuts of up to 40%, following George Osborne's emergency Budget – significantly higher than the reductions indicated by the chancellor – The MJ can reveal.
During the build up to the chancellor's austerity Budget on 22 June – which also outlined plans to freeze council tax and public sector pay – CLG secretary, Eric Pickles, told Conservative council leaders to plan for grant cuts of ‘between 30% and 40%' over four years, a senior source said.
In response, former CLG secretary, John Denham, told The MJ there was now a ‘very real risk' councils would be forced to axe some frontline local services.
‘Local government is certainly going to carry a lot of the burden of the chancellor's decision to reduce the budget deficit faster than Labour had planned,' Mr Denham said. Mr Pickles prepared the ground for swingeing cuts to Whitehall-funded local budgets at a meeting of Conservative councillors last week.
The full extent of cuts facing the sector will not be known until the Spending Review is published on 20 October. But the 30% to 40% figure – which would not apply to all councils' grants – is at the upper end of even the most radical predictions.
Speaking during his Budget announcement, Mr Osborne revealed the CLG – which distributes councils' centrally funded grants – faced an expenditure cut of at least 25% by 2015.
The departmental reductions are a key tenet of the chancellor's plan to slash public sector net borrowing from £149bn this year to £60bn in 2013-14.
To help achieve this, Mr Osborne identified another round of public sector cuts – £17bn by 2015 – above the £44bn annual savings he had already outlined since the Conservative-Liberal Democrat coalition came to power. With health and international aid budgets ring-fenced, financial pressures on other parts of the public sector have, therefore, intensified. ‘The Budget figures imply that [non ring-fenced] departments will face an average real cut of 25% over four years,' Mr Osborne warned. Speaking after the Budget was published,SOLACE chief, David Clark, said the likelihood was that the CLG would ‘pass on' its cuts to councils.
LGA chair, Dame Margaret Eaton, warned the chancellor's proposals would have ‘far-reaching effects'. But she hoped the sector's cuts could be made by axing quangos, bureaucracies and local audit responsibilities – not services.
CIPFA chief executive, Steve Freer, expressed a ‘sense of relief' that a plan to reduce the UK's spiralling debt was finally on the table following politicians' ‘phoney war' over public finances.
But, he added: ‘The chancellor's decision to tackle the problem and to resolve it in a single parliament is very ambitious. The focus, therefore, shifts to whether this very ambitious plan can be delivered sustainably, without affecting services.' Mr Freer also warned: ‘Nobody should assume the toughest decisions have now been made – they've merely been handed to the likes of councils.'
As expected, Mr Osborne also pledged to help local authorities freeze council tax for one year from next April, with the option to extend the £630m programme in 2012/13. Details of how councils would be compensated under the plan have yet to be revealed. But Mr Pickles said: ‘Council tax bills have more than doubled in the last 13 years, while frontline services such as bin collections, were halved. Rocketing council tax has to stop, to offer real help to struggling families and pensioners.'
But Mr Freer said: ‘It is slightly paradoxical to introduce a scheme designed to control costs and incentives… at a point when, clearly, costs are going to be decreasing significantly anyway.'
