Boris Johnson and Rishi Sunak are reportedly planning to set out an “endemic recovery plan” in the 3 March budget, a “jobs first” stimulus package likely to entail “high state spending for a decade”, according to The Times. As the government looks set to dig even deeper into its coffers and set out its “levelling-up” agenda, this morning Keir Starmer will set out a similar stall in his “new chapter for Britain” speech on the post-Covid economy. As commentators on all sides of Westminster’s divides talk of an “Attlee moment” for the UK, there is recognition of a unique opportunity for an era-defining, transformational government once lockdown restrictions have eased.
But while Treasury largesse on the furlough programme and business grants have been welcomed by organisations as disparate as the Trades Union Congress and the Confederation of British Industry, the spending splurge has not yet filtered down to the local authorities responsible for delivering many key services.
Last week it was announced that four English councils – Eastbourne, Bexley, Luton and Peterborough – had received emergency funding from the government after being unable to balance their books. Unlike central government, councils do not have the luxury of being able to run large deficits on day-to-day spending. The pandemic has added strain to local authority finances, which are already in tatters because of severe cuts to council budgets. Since George Osborne’s 2010 Spending Review, successive secretaries of state at the Ministry of Housing, Communities and Local Government (formerly the Department for Communities and Local Government) have overseen a cumulative 50 per cent drop in funding, the largest of any government department. Research by the BBC last year found that, of 173 authorities surveyed, 148 predicted a budget shortfall for 2021.
The House of Commons’ Public Accounts Committee has warned of the danger this poses. In January, the committee published a report saying that the “financial sustainability of some local authorities presents a significant risk to government”. The annual Whole of Government Accounts findings said the committee “expect[ed] that more local authorities will soon be unable to balance their books and will be forced to issue section 114 notices”.
These notices – effectively declarations of bankruptcy by local councils – will be a cross-party affair. Bailed-out Eastborne and Luton are run by Liberal Democrat and Labour administrations, while Bexley and Peterborough are Conservative. Communities Secretary Robert Jenrick has conceded that the financial difficulties of many councils are down to the deleterious effects of Covid-19 and lockdown, but he insists that in other cases “very poor management” is to blame. This narrative of deserving and undeserving councils implies that profligate authorities are piling up unsustainable and irresponsible levels of debt.
Just before the beginning of the first lockdown in March last year, Jenrick promised local authority leaders that the government “stands with councils” and “will do whatever is necessary” to support them through the crisis. But despite several billion in extra financial support, council finances have taken a severe battering. Over the past year, the effects of 10 years of austerity have collided with the two-pronged effects of the pandemic: plummetting revenues from parking fees, paid-for services and commercial investments, and higher outgoings on supporting residents through lockdowns.
Many councils have co-ordinated volunteer groups, provided food deliveries for shielding residents, and have seen their social care services stretched to breaking point. “The pandemic has shone a light on the highly valued services councils provide,” says James Jamieson, chair of the Local Government Association and a Conservative Central Bedfordshire councillor. “Public finances will undoubtedly be under huge strain in the years ahead but investment in our local public services is critical to our national recovery.”
As the recent bailouts demonstrate, however, in spite of Downing Street’s promises of big capital spending, local councils across the UK are planning to make redundancies and wind down non-statutory services. Most are looking to increase council tax by 5 per cent – the highest increase possible – to try to offset lost revenue. The Financial Times has reported that at least 12 English councils are in “rescue talks” with central government.
“The government has proclaimed the end of austerity for over a year now and yet front-line services delivered by councils are still facing deep cuts,” Adam Lent, chief executive of the New Local think tank, tells Spotlight. “Until the government properly funds absolutely fundamental services like care for the elderly, disabled and vulnerable children, we should treat any new claims of an end to austerity with extreme scepticism.”
In November, Croydon council issued a section 114 notice after the authority was unable to set a balanced budget. The auditors, Grant Thornton, accused the council of “collective corporate blindness” over the mismanagement of commercial investments. The Labour-run authority had poured money into ventures such as a hotel and a shopping centre, which cost £80m between them and are now deserted as a result of lockdown. Brick By Brick, a property development company established by the borough to build affordable housing, received £200m in loans despite not paying out any dividends or interest.
But these blunders don’t tell the whole story. Commercial investments of this kind are increasingly used by councils across the country to compensate for cuts in their central government grant. As austerity has been devolved from Whitehall to town hall, the worst-hit local authorities have lost up to two-thirds of their annual allocation from central government, an amount that’s impossible to make up through increases in council tax or business rates. In response, local authorities have taken on the role of local landlord and entrepreneur, making speculative investments as a way of replacing their dwindling Treasury funding with revenue from rents, profits and interest. Now, many of those investments are on the edge of insolvency as a result of the Covid-19 crisis.
Some £2.2bn extra in central government funding will be allocated to councils this year – the first increase in a decade. But for many this is nowhere near enough to fill their funding black hole. Manchester council is planning £50m of cuts, including in its budget for homeless services. Liverpool council similarly forecasts a budget shortfall of £55.6m for the coming financial year. Leeds council has announced that 600 local authority jobs, as well as core services, are under threat as it faces a £118.8m deficit over the next two years. These cities have been key to the so-called Northern Powerhouse project, which has firmly stamped regional development on the Tory agenda since its announcement in 2014.
As mayor of London and as foreign secretary, the Prime Minister’s proclivities were for infrastructural mega-projects, often with questionable added value: the Emirates Air Line cable car with its four regular users; the ‘garden bridge’ across the river Thames. The pandemic response has reinforced this perception, with the government floating, for instance, a £100bn “Moonshot” project while failing to deliver more basic necessities like adequate free school meals.
Local councils deliver a vast range of foundational services, from social care to local authority-run schools, to waste collection, social housing, libraries, street cleaning, planning, licensing, leisure centres, youth clubs, parks, business support and homeless shelters. Recovery from the current crisis will require more than the debt-financed infrastructure spending likely to be announced in the “endemic recovery plan”. “Levelling up” needs to start locally, with the basics.