Feature / Localised pain

NHS finance managers will be aware that local authorities are struggling financially. Seamus Ward finds out why


The announcement earlier this year that Sheffield’s Don Valley Stadium – made famous by locally trained athlete Jessica Ennis-Hill – was to close has become a symbol for the financial pressure on local authorities.

As Healthcare Finance went to press, campaigners were attempting to keep the council-owned facility safe from the wrecker’s ball, but whatever the final outcome, Sheffield City Council will have to save £50m from its budget this year.

Sheffield is not alone in making year-on-year cuts (£140m between 2011 and 2013). Birmingham City Council reduced spending by £275m over the past two years and is aiming to save around £102m in 2013/14. In the steel city and other parts of the county, local people have taken to the streets to protest.

The reason for the financial pain is rooted in the reduction of central government grants given to local authorities. They have three main sources of funding – central government grants, council tax and other locally generated income – such as parking and waste removal fees, which are set to increase in many areas.


Funding cuts

In the 2010 spending review and subsequent financial statements, the chancellor cut grant funding to local authorities by 33% in real terms between 2011 and 2015. And there will be a further 10% real terms reduction in funding in 2015/16.

According to the Local Government Association (LGA), this will actually mean a 15% cut in 2015/16 – because some funds are being held back (which means they cannot be included in council budgets yet) or are linked to spending additional sums.

Although local authorities will receive new grants, such as for public health, and integration funds from the NHS, the LGA estimates total council income will fall by £7.4bn between 2010/11 and 2019/20 – from around £51bn to just under £44bn. Excluding public health grants, the overall decline in income is £10.5bn.

The Institute for Fiscal Studies said last year that while police, fire and social services were relatively protected, councils were generally targeting cuts in planning services, leisure and libraries. LGA chairman Sir Merrick Cockell says local government faces a £14bn ‘black hole’ by 2020. And there is a danger of losing some services entirely. The LGA says rising demand and cost of councils’ three main statutory obligations – adult social care, children’s social care and waste management – will mean funds available for other services, such as leisure and road maintenance, will shrink by 46% by 2020.


Job losses

There have been significant job losses. In the first six months of this year, local government lost 74,000 posts. By the end of 2011/12 local government employment was 15% lower (445,000 jobs) than at its peak level at quarter three in 2006. Although numbers would have fallen anyway – school academy staff are now counted against central government figures, for example – significant numbers of redundancies are being made.

Sir Merrick believes the transfer of £3.8bn of NHS funding to social services from 2015/16 offers hope for a new model of community-based, integrated services. ‘The widening of the health budget to incorporate adult social care is an indication of the type of joined-up approach that has to be adopted across Whitehall and all levels of government,’ he says.

The transfer of NHS funding is welcome – but the health service will hope the money is used to relieve pressure on services.

One solution to the shortfall created by the cut in grants is to increase council tax, which currently accounts for about 42% of revenue. But this is not an option for many local authorities – instead, agreeing to freeze the tax in exchange for an extra government grant equivalent to a 1% increase in the 2013/14 band D council tax. Authorities that refuse this deal cannot increase council tax by more than 2% without holding a local referendum.

Communities and local government minister Eric Pickles recently highlighted council reserves, which overall have trebled in the past 10 years according to the Office for National Statistics. Reserves in English councils now stand at more than £19bn. While acknowledging the need to hold a reserve, Mr Pickles insisted the level was too high.

Councils hit back. They insist that reserves can only be spent once and, when spent, add to the public sector deficit. Much of the reserves are ring-fenced. A Birmingham City Council spokesperson says general reserves amounted to almost £108m at the end of 2012/13, £83m of which was ring-fenced for specific services.

As is often the case between local and central government, there is a war of words over the severity of spending cuts and the correct approach to minimise their effects. However, it is clear local government will remain on austerity measures for many years to come.