Treasury could reopen council funding plans

Author: James Illman, The MJ - Nov 30, 2011

Ministers have refused to rule out further reductions in local government funding before 2015 as a result of George Osborne’s plans for fresh public sector wage caps.

The chancellor said in his autumn statement on Tuesday that public sector pay awards would be capped at an average of 1% for each of the two years after the current pay freeze comes to an end in 2013.

As exclusively first by LGC, the Department for Communities & Local Government said it could not rule out further cuts to council funding as a result of the policy (29 Nov, LGCplus.com/5038570.article).

A DCLG spokesman said: “Local government does its own pay awards and the chancellor was clear that every bit of the public sector needs to do its bit. We are looking at the implications of the pay policy on local government.”

The Local Government Association said the prospect of further reductions in funding for councils, running into hundreds of millions of pounds from 2013, risked “adversely impacting vital local services people rely on every day”.

LGA chairman Sir Merrick Cockell (Con) said: “As the most trusted and efficient part of the public sector, councils have borne the brunt of the cuts in a disciplined manner balancing the needs of the economy against maintaining vital local services.”

The news comes with councils expecting to find out their spending envelopes for 2012-13 next week.

Councils have already had real terms reductions of 28% over the four spending review years compared with overall cuts of 8.3% across all Whitehall departmental budgets, Sir Merrick pointed out.

As LGC exclusively revealed last week, council chiefs have already raised fears with mandarins about the prospect that the sector’s 2013-14 and 2014-15 settlements could be re-opened (23 Nov LGCplus.com/5038252.article).

The autumn statement said: “The government will set public sector pay awards at an average of 1% for each of the two years after the current pay freeze comes to an end.

“Departmental budgets will be adjusted in line with this policy, with the exception of the health and schools budgets, where the money saved will be recycled. This will protect expenditure on public service.”

The gloomy forecast was compounded by news that job losses in local government are set to be much higher than previously thought. The Office for Budget Responsibility increased its projections for public sector job losses by 77%.

With councils making up just over a third of total public sector employment, the new figure of 710,000 job losses across government by 2017 suggests council workforces will fall by about quarter of a million, from 2.2m employees at the beginning of this year to 1.9m.

On top of the pay cap, Mr Osborne also confirmed total government spending in 2015-16 and 2016-17 would continue to fall by 0.9% each year. Details of individual departmental spending limits would be published “in due course”, the Treasury said.

Senior economists also cast doubt over whether the chancellor will meet his revised target of eliminating the structural deficit by 2016-17, with PricewaterhouseCoopers chief economist John Hawksworth, saying it would be a “very close call”.

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