Blink and you missed the end of austerity

Ending austerity never really seemed like more than a technicality, but inflationary pressures mean it could be back with a vengeance, writes LGC editor Sarah Calkin

During last October’s spending review, Chancellor Rishi Sunak hailed what he described as the biggest increase in core funding for councils in a decade.

As always, the caveats and reservations about the main claim quickly became clear – much of the new funding was for adult welfare reforms and councils were to rack up another council tax maximum increase on residents. The 3% increase announced by the Chancellor was actually more like 1.8%.

Yet the fact remains that, even removing adult social care money, it was by recent standards a relatively generous settlement which was bolstered by a one-off £822m service support grant sterling and a promise of future stability.

For once, local government wasn’t at the bottom of the departmental pile when it came to settlement funding (that boobie prize went to the defense).

And while a three-year settlement didn’t follow the three-year spending review, it did at least give an indication of what’s to come and a welcome promise that funding reform would finally take place the Next year.

Less than a year later, all funding increases have been virtually wiped out by inflationary pressures.

Figures shared with LGC by the IFS now put average growth in basic purchasing power over the three years to 2024-25 at 0.4%. If the government wanted to honor its request of last October, it would have to find an additional 1.2 billion pounds.

And as the IFS acknowledges, even that is probably a conservative estimate, based on inflation in March, which stood at 6.2% from 9.4% in June.

The Local Government Association estimates the impact of inflation, plus the National Living Wage, plus soaring energy costs at £2.4billion this year alone.

And the focus on basic purchasing power is only part of the story. It fails to capture the complex relationship between revenue and capital budgets after a decade in which councils increasingly sought to generate their own revenue, initially with much encouragement from central government, but may now face increased costs of borrowing for capital projects, even projects. becoming unaffordable, with potential repercussions on their MTFPs.

So what will this mean for individual councils? As usual, this will vary, with some better able to weather the storm than others due to reserves and other revenue streams. For others, the picture can be much darker.

The end of austerity never really seemed like a technicality: after almost a decade, the councils desperately needed a significant growth in funding that had to do with the demand for services.

But as finance teams begin to think seriously about next year’s budget, things will once again look extremely tight.

When councilors begin to consider setting next year’s budget in the fall, the energy price cap will have risen again and elected members from all political parties and none will undoubtedly be extremely reluctant to impose another significant council tax increase on residents.

Meanwhile, councils are increasingly warning that the funding provided for adult welfare reforms is insufficient to meet the new demands placed on them, let alone that it does nothing to respond to the pressures underlying costs and demand already in the system.

Put it all together and while the government may do well to resist council calls for more funding this year, it seems unlikely that position will be sustained for 2023 and beyond.

Comments are closed.