England & Wales Communities and society, Democracy, devolution and governance, Economy and regeneration, Finance, Personal and organisational development

Chicken or Egg? Devolution, spending cuts and public service reform

The short-term financial position for local authorities looks harsh. There have been different interpretations of the draft financial settlement – mainly between DCLG ministers and local government representatives, but it is clear that for many councils this year will be very difficult (see here for what CIPFA has to say on this in Public Finance).

There are also ongoing arguments over differences between councils, with some Northern councils, in particular, claiming that many urban and northern councils have been hardest hit. Ministers say that in cash terms these councils have greater spending per head than those that seem to have the best finance settlements. The NAO, however, has stated that ‘it is clear the financial challenge has been greater for some local authorities than others. Those councils that are dependent on grants have received larger reductions in government funding. These are largely those authorities in more deprived areas, reflecting the historic needs-based funding system. We found these authorities have been less able to protect spending on key services’ 2014).

So how optimistic or pessimistic should local government be about its medium and longer-term future?

The financial picture for local government after the general election, whoever wins it, is not going to improve. Even if there will be change – policies do differ – austerity continues, demand for services will increase and demographic pressures worsen.

Local government is looking to solutions beyond increased funding – how realistic is that?

Firstly different models of public service are being developed, with new delivery models, co-delivery and production, and partnership arrangements flourishing. There is greater emphasis on preventing problems and in early intervention. There has been some progress around joining up health and social care and there are new ways of thinking and delivery around issues such as working with troubled families.

And this is particularly strong in local government. But the picture is very mixed – co-production is extremely patchy, joined up working and thinking is weak in many government departments, there is no consistent, overarching vision about the future of public services. Radical decentralisation of budgets, the ability to pool budgets at the national and local level across services and the breaking down of silos within central government and between professionals could be a major step forward. Developing more equal relationships between citizens and institutions and service users and providers is
crucial. Devolution without more consistent and coherent reforms of how public services are delivered in localities won’t work.

And what about devolution? All the main Westminster parties are, they say, committed to greater devolution at the local level. Local government is bound to be somewhat sceptical – governments seldom live up to their localist protestations. Yet there has been progress and the Scottish referendum and aftermath in particular have changed the mood around, if not yet the realities of, devolution.

Devolution is about devolving powers, giving councils greater flexibilities and freedoms, but how meaningful is it without devolving the ability to raise income, increase investment and make spending decisions locally without Whitehall interference? Clearly it wouldn’t be meaningful – devolving powers has to go hand in hand with fiscal devolution. But again this isn’t going to be easy.

Self-sufficiency seems to be the new name of the game – making local government largely free of central government funding. By 2018-19 council tax and business rate revenues will overtake local government’s projected funding. This could happen earlier in some authorities, mainly districts. But there are major challenges here – how can councils be given much greater incentives to promote growth and to maximise income whilst maintaining some form of equalisation? And devolution has to go beyond the major cities.

So this is a complex and difficult agenda. But one that the next government, of whatever complexion, can’t avoid. Local authorities, individually, in groups, and collectively, will be demanding greater control over spending and funding decisions without Whitehall interference. If the political parties believe in devolving powers to local areas to increase growth then they have to acknowledge the logical consequences of doing so – there has to be the financial capacity to be able to invest and to fully use new economic powers. If councils are to be more financially self-sufficient they need to be able to increase their budgets to avoid stagnation. If we are to begin to tackle huge challenges such as demographic change and rising expectations, growing inequality, and lack of trust in political institutions to improve people’s lives, then there needs to be more fundamental public service reform.

There isn’t a magic bullet here. The cuts facing local authorities now and in the foreseeable future are putting immense pressures on many councils. Devolution and public service reform are necessary but not sufficient – the current level and system of local government funding is unsustainable.

So this isn’t really a chicken and egg issue. Finance, reform and devolution are part of the same picture. And that means facing urgent funding issues right now – social care being the most critical; no use devolving powers in the future to councils that have been stripped of the ability to maintain decent services.

In the run up to the general election and in the politicking beyond, local government needs to make sure the message that devolution, reform and finance are inextricably linked is heard loud
and clear.

This blog is based on the comment section in this month’s On Your Radar  (members only) which was published on 22 January