Campaign news

Local government funding in crisis

19th December 2016

By Martin Wicks

Local Government is facing an unprecedented financial crisis resulting from the austerity programme and changes in the funding system. The allocations for funding for 2014-15 and 2015-16 were set on the basis of reductions in 2013-14 funding. The coalition government then abandoned the uprating of grants in line with an annual assessment of local needs. A new assessment is not due until 2020. Although councils will eventually be able to keep all their business rates this will be at the expense of declining government grant. By 2020 many authorities will receive no grant at all.

The loss of grant will have a greater impact on poorer towns. Rich towns have more expensive housing and hence more council tax income. Income will only rise if there is an increase in council tax and business rates. The Institute of Fiscal Studies explains that this system will result in “transfers from areas with poor growth prospects to those with good growth prospects”. Since local authorities do not have equal capacity to grow business rates or council tax, inequality of funding will grow.

What is Labour’s response to this unprecedented assault on local authorities? By and large Labour councils are implementing swingeing cuts. Nationally Labour has made no attempt to build a movement to resist the government offensive. Hence Labour authorities are left to their own devices, at best seeking to manoeuvre, at worst simply implementing the cuts without protest. The last Labour conference even changed the constitution to make opposition or abstention on setting a ‘legal budget’ a disciplinary offence.

In Durham a Labour council is proposing to issue redundancy notices aimed at forcing teaching assistants to sign up to new contracts which involve as much as a 23% cut in wages. In Nottingham a Labour Council is proposing to:

remove the top two pay points in every grade; » end weekend pay enhancements;
remove all contracted terms and conditions, such that benefits can be changed at the employer’s discretion without negotiation.
The council is writing to every employee asking them to sign up to the proposed terms individually. These are the actions of an anti-union employer. How can Labour build support among local government workers and supporters of public services if its councils are behaving in such a way? Labour does not have a strategy for addressing the crisis of local government. It’s not clear what it would do in office. If the current government policy is unchallenged then local services will be decimated in its remaining years in office.

The leadership has said it would borrow for capital projects. But if it supports a ‘balanced budget’ over a parliamentary term this means it will do nothing to address underfunding of local government current spending. It will in effect be accepting funding levels bequeathed by the Tories. There is, however, a way in which the financial crisis of local government can be addressed without strictly speaking “creating money”. Local authorities have £64,817 billion of debt held with the Treasury’s Public Works Loan Board.

If Labour wanted to carry out a radical measure which would address the chronic under-funding of local government they should cancel this debt. In 2015-16 councils paid £2.930 billion interest payments, and £2.131 billion repayment of the principal. If the debt was cancelled this would provide councils with an additional £5 billion spending capacity each year.

The loss to the Treasury of £5 billion a year is a modest sum for the national economy. The resulting extra spending would provide a significant economic stimulus based on socially useful activity, be it social care, building of council housing, or funding libraries.

If Labour is to provide a practical alternative it needs to combine the building of resistance to the government by trade unionists, service users, and local authorities, with a clear programme which will offer a fundamental break with austerity, and begin to mend the damage done. Cancellation of local government debt can form the bedrock of such a programme.

If Labour councils see no prospect of a change they will continue to implement socially disastrous cuts because they believe they have ‘no choice’. Labour cannot be ‘the anti-austerity party’ without challenging in practice the government’s assault on public services. It certainly should not leave in place a system which entrenches local and regional inequalities. It needs to commit to returning to a system which seeks to equalise services, basing funding on the actual economic and social conditions in each area - based on social needs rather than ‘incentives’.