Understanding the Local Government budget cuts

When £10 million isn't 10 million pounds...

A little while ago one of my colleagues wrote a piece detailing how the ‘feared’ cuts of April 2011 were in reality just the calm before the storm. They briefly explained how local authorities had dealt with the budget cuts in a very short period of time:

Well, some of them looked at what they could do in a few months and made some small cuts around the edges. Others looked at small financial adjustments they could make which could keep them going for a year. Some found ‘underspends’ to roll over whilst others just dived into their reserves to make ends meet from 2010/11 to 2011/12.

This is evidence, if ever it was needed, that the local government budget process is pretty complicated. This was further brought home to me last week when the estimable Simon Parker of the NLGN reported from the Lib Dem Conference that:

Turns out LibDems aren’t all that passionate about #localgov – but MPs in denial – one said cuts ‘not draconian.

Not draconian? Surely they missed the memo?

Well, either that or they simply don’t quite understand the local government budget.

The budget in my local authority is roughly (and all numbers here are rough as the budget process is way above my pay grade) £140 million and we’re being asked to find something like £50 million savings over the next four years. The assumption you might make is that the council’s budget in 2015 would be just £90 million.

Unfortunately, this is totally incorrect. Our budget in 2015 will probably end up being something like £130 million. You might then assume that this is a cut of just £10 million and something that our Lib Dem friends would easily describe as ‘not draconian’. Again, you’d be wrong.

So why the discrepancy?

Because life isn’t static and nor is the council budget.

When preparing the long term budget each council has to take account of quite a few different factors. About half of the local government budget is spent on goods and services and these are, like almost all goods and services, affected by inflation. Currently, this is running at somewhere like 4-5% and currently the Government aren’t planning to give us more money because of it.

Most councils will budget for a much lower rate of inflation across the board and then add on additional money for services that we can predict will definitely rise. The key example from this year is our utilities bills which, as almost every reader will know from their home bills, are quickly outstripping inflation.

Well what about staff? Although it is quite beguiling to simply say that there will be no pay rises for the next four years, in reality local authorities can probably only sustain this for one or two years. With this in mind, a well run local authority will be planning for pay increases for their staff of between 1 and 3% (much nearer to 1% than 3% is my guess).

What else?

Well, amongst the most expensive services provided by a local authority are the social care services for adults and children. Each authority will use demographic assumptions to ensure that they are able to provide the same level of service to all users regardless of the amount of people who might need that service. We can’t just set a limit and when we reach say ‘sorry, no room at the inn’ to anyone else who is in need.

What we describe as ‘demographic pressures’ is simply a councils attempt to budget for real increases in the amount of people accessing some of our services. To not budget for this would be incredibly unwise and would lead to a totally unrealistic budget.

You can add to this the increasing costs of capital borrowing (if interest rates rise; I think we’re hoping for them to stay at 0.5%) and the possible outcome of the localisation of council tax and housing benefit (which could make things worse) and you can start to understand why a cut of £10 million (not draconian) over the next four years actually ends up requiring the authority to make nearly £50 million of savings.

Which is a lot.

Welovelocalgovernment is a blog written by UK local government officers. If you have a piece you’d like to submit or any comments you’d like to make please drop us a line at: welovelocalgovernment@gmail.com

Explore posts in the same categories: The future of Local Govt, We love the Council

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2 Comments on “Understanding the Local Government budget cuts”

  1. […] council budget is made up of council tax, Government grant (derived from business rates) and various fees and […]

  2. […] both of these services the story is unfortunately a familiar one. As explained in previous posts local authorities have a lot of things that they legally have to do and the costs of those things, […]

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