Before the 2016 referendum the government’s austerity programme was the defining political issue of our age. Over the last 10 years, the public spending reductions implemented following the 2008 financial crisis have radically altered the nature and shape of the state at the national and in particular at the local level.
Until very recently it looked as if this period of austerity was to become the new normal. But in her party conference speech last October the Prime Minister announced that austerity was coming to an end. Whether austerity actually ends only time will tell, but even if it does for the state as a whole, the worry is that for parts of the public sector, and in particular for local government, the austerity story will carry on well into the next decade.
Local government experienced the deepest cuts by far in the last ten years. While this has made councils more efficient and effective, the sheer scale of the cuts is increasingly impacting on their ability to provide local services to their residents, particularly those most reliant of such services.
Our Cities Outlook 2019 report, released this week, examined this issue in detail and found that nowhere has felt the fiscal pinch of austerity more than cities. Despite being home to around half the population, the country’s 62 biggest cities and towns have shouldered three quarters of all cuts to local government. In cash terms, this is equivalent to a £386 cut for every city dweller over the last decade, compared to just £172 per person living elsewhere.
Poorer northern cities have been hit especially hard. The five cities that saw the biggest falls in spending were located in the North of England, with Barnsley, Liverpool and Doncaster all seeing real-terms cuts of over 30 per cent. Liverpool’s per head spending fall was by far the biggest in the country, equivalent to £816 for everyone living in the city.
Unfortunately for these cities, their weaker local economies meant that they have been less able to absorb the cuts to their central government grant funding by generating income from other means such as raising council tax or increasing fees and charges for services.
This is a problem on many levels. Firstly, there is a question of fairness. The cuts were not intentionally designed to fall harder on poorer cities, but this is the reality of how they played out. As a result there is a moral case for correcting the unintended impact of this approach.
Secondly, on a more strategic level, cities are the economic hubs that drive our national prosperity; their performance is felt far beyond their political boundaries. Therefore cuts to services that help make our cities vibrant and dynamic places to work, live and visit, such as planning and economic development will not only harm them in the long term, it will also hit the country’s prosperity.
How can we address this situation? Yes, more money would go a long way in the poorer cities that have seen the biggest falls in spending; but it is not just a question of cash. There are relatively cost-free measures that the Chancellor should introduce as part of the upcoming Spending Review to empower city leaders to more effectively manage their finances.
First, the current restrictions on what councils can spend funds raised through public charges on should be loosened. Currently, for example, money raised through parking charges can only be spent on transport. Having to spend scarce funding on potentially unnecessary transport initiatives makes little sense to people seeing their libraries and children’s centres closing due to lack of money. The Chancellor should address this in the upcoming Spending Review.
He should also enable councils to set multi-year budgets – where spend and income can vary year on year within the budget period. The current rules force them to set annual balanced budgets which make delivering long-term strategic service reforms and investments in areas such as health, social care, housing and transport very difficult.
The final challenge for cities’ finances will be the hardest to solve: developing a sustainable social care funding strategy. Cities Outlook 2019 found that the growing demand for social care is adding to the squeeze on cities’ finances. A decade ago, just four cities out of the 62 we studied spent the majority of their budget on social care: now, half of them do. It is no coincidence that Barnsley, the city that has seen the largest cut in spending nationally, is also the city that dedicates the largest share of its budget to funding social care in Britain.
Developing a long-term plan for meeting our growing social care demands is crucial to addressing cities’ financial challenges.
Cities are home to 58 per cent of the UK’s high skilled jobs, 60 per cent of new business starts and 62 per cent of the country’s GVA, making them vital to our national success. However a decade of falling spending, particularly in areas deemed “non-essential” such as economic development, planning and skills, has greatly weakened the capacity of cities to support sustainable long-term growth.
The upcoming Spending Review is an opportunity for the Chancellor to address this challenge and allow them to take back control of their finances. It is in all of our interests that he doesn’t miss this opportunity.
Andrew Carter is Chief Executive of Centre for Cities; you can read its Cities Outlook 2019 report here.