George Osborne

Autumn Statement: devolution and the impact on local government

Announcements made by the Chancellor could mean that local authorities face a financial tipping point during the course of this Parliament.

Changes announced in the Autumn Statement represent the biggest change in local government finance in 35 years with the end of the block grant. 

This has scope to completely redraw local government, but it needs to be accompanied by further decentralisation - relaxing national targets and rules that hinder cross service collaboration, for instance - and fiscal devolution in order to enable local authorities to build vibrant local economies and genuine place based solutions.

The Chancellor confirmed the scale of the funding reductions faced by local government over the life of this Parliament, with plans to phase out the block revenue grant by 2020. He also announced that by 2019/20 councils will be spending the same, in cash terms, as they are currently. Many significant 'ifs' remain, which will ultimately determine whether this scenario is achievable.

The most significant announcement is that the main central government revenue grant to local government will be phased out completely by 2020. This will leave council tax and business rates as the main source of local government revenue, but both retain significant central control.

For example, if a local authority wants to increase the council tax above 2%, local electors must vote in favour. Business rates can only be increased by a democratically elected mayor of a combined authority, of which none exist at present.

It is a fallacy to assume that local authorities can use reserves to help absorb the removal of the block revenue grant because they can not be used in a recurring way; they can never prop up baseline revenue budgets in lieu of government funding reductions.

They can only be used as a one off contribution to revenue spending and do not provide a sustainable solution to maintaining local authority services. However, greater scrutiny of how reserves are being used should be an important area of focus for members. 

Local authorities have been acting responsibly in their use of reserves, particularly given uncertainties over future central government funding reductions. The Chancellor does not seem to appreciate the irony in criticising the last Labour government for "not saving for a rainy day" when he is accusing local authorities of doing just that with their use of reserves.

Unless there are further changes to local governments' capital financing regime, the retention of 100% of capital receipts will have limited benefit in terms of funding service delivery.

Whilst no new devolution deals were announced today, it is clear that the Chancellor sees devolution as a key solution to these challenges. It is both a key enabler of the necessary scale of public service reform required, and is a key driver of economic growth.

Devolution does, however, remain in its infancy. Less than ten localities have some form of deal on the table. Even the front-runner, Greater Manchester, is some way off implementing any form of devolution - let alone being in the position of realising improved outcomes, savings and efficiencies.

Local authorities have been well led in recent years. Failure to further shape their future and work, within the opportunities and threats that are now present, will mean that some could face a financial tipping point during the course of this Parliament.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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