The fairness (or otherwise) of the 2015-16 local government finance settlement

Chris Game

In choosing to announce the 2015-16 local government finance settlement just eight days before Christmas, ministers presumably hoped – as, indeed, I’d expected – that the argument about the presentation of funding and spending cut statistics for local authorities, both collectively and individually, would have died away by mid-January. However, it hasn’t, which is why I too am returning to the topic, which had its importance re-emphasised several times over the past week. First, Paul Woods, until recently Newcastle’s long-term and respected Treasurer, expressed in a Local Government Chronicle column (13 Jan.) his disappointment at the widespread:

“Acceptance being given to a low 1.8% spending power cut, as opposed to the more realistic analysis by the Chartered Institute of Public Finance & Accountancy (CIPFA) of a 6% cut. A truly independent and objective analysis of the settlement … would be unlikely to conclude that spending power has only been cut by 1.8% … [or that] as the government has claimed, the settlement is fair to north, south, urban and rural areas”.

That last ‘claim’ was a direct quote from the opening paragraph of an article that Local Government Minister, Kris Hopkins, had evidently felt it necessary to write for the same magazine (LGC 12 Jan.). Not surprisingly, it largely reiterated points from his settlement announcement – including that “councils facing the highest demand for services continue to receive substantially more funding … than authorities facing less pressure”, and that, for pooled budgets like the public health grant, “it would be perverse not to consider [all] the money as part of the funding available” to local authorities, including that actually spent by the NHS. Then, last Friday, we had the open letter from Rob Whiteman, CIPFA Chief Executive, to DCLG’s new Permanent Secretary, Melanie Dawes. After congratulating Dawes on her appointment, Whiteman attempted quite a barbed lecturette on “ethics in government”, including the need for “greater clarity” in the department’s public communications, as opposed:

“to the rhetoric and spin that has too often characterised the presentation of the numbers by DCLG and others over the past few years … [meaning that] … the public are being misinformed about official information and data. For example, describing transferred resources that still must be spent on the NHS as increasing councils’ ‘spending power’ in a way that under-reports their loss of DCLG grant is disingenuous.”

Given these developments, it seemed worthwhile using these columns – in which it is possible to include both links/references and a couple of rather striking graphs – to explain a bit more fully, if very definitely non-technically – what this dispute is about.

Grants and grant funding can seem both bewildering and paint-dryingly boring. But, at our combined average age of ten, my younger sister Jennifer and I didn’t know this, and we reckoned we’d cracked at least the essential principles – which was fortunate, as we and our mum were even more heavily grant-dependent than today’s metropolitan borough councils.

In our traditional patriarchal household, my father was the sole wage-earner, and he funded my mother through her weekly (Friday) ‘housekeeping’ grant, and us children through our weekly (Saturday) pocket-money grants. Opportunistically, through grandparental charity or the undertaking of ‘errands’ (mainly me) and ‘chores’ (J), we could increase our revenue spending power. But we could also suffer largely non-negotiable grant-loss, to pay for the upkeep of J’s pet rabbit, a cricket ball-broken window, or – seasonal touch here – Christmas gifts for the afore-mentioned grandparents.

The point is that, callow as we were, we understood perfectly the distinction between grant funding and spending power – unlike the sections of our media who either parroted or headlined not the finance settlement’s actual words – let alone its meaning – but DCLG ministers’ political message. ITV was typical: “the amount of funding councils will get in central government grants will be reduced by 1.8% in 2015-16”.

That’s what ministers hoped we’d hear, but for them the F-for-funding word has become as unmentionable in company as the Old English F-expletive. ‘Amount of funding’ is much too coarse, measurable and comprehensible. It’s far more refined – and cryptic – to talk of spending power (SP), particularly if you get to define it yourself. What minister Hopkins announced, therefore, was that “the average spending power reduction for councils in 2015-16 is just 1.8%”. Indeed, with “the additional transformation money the government is giving councils to improve services, this reduction falls to 1.6%” (emphases added). See, it’s getting even better. Moreover:

“Those facing the highest demand for services continue to receive substantially more funding. For example, Middlesbrough has a spending power per household of £2,441, which is £871 more than the £1,570 per household in Windsor and Maidenhead.”

This is the fifth year in which ministers have attempted this sleight of hand, and, to be fair, most of the media have caught on. Most did report that the 1.8% cut is not in councils’ grant-funding, but their spending power – though still only a minority explained the distinction and its significance.

It would have been like my father deciding in one of the 1950s’ sterling crises that we should all (kids included) be in it together, and imposing a three pence austerity cut in my pocket money of two shillings and sixpence (2/6 = 30 pre-decimal pence) – but overlooking that he’d already cut it by sixpence for cricketing misdemeanours, which I’d subsequently made up through errand work. As he might have explained, it was only a 10% reduction in my spending power, not the 12.5% grant cut I was claiming. Besides, he knew of better-off families in Westcliff (SE Essex’s nearly-as-posh equivalent of Windsor and Maidenhead) whose children didn’t even get weekly pocket money.

Following the Coalition’s ideological decision to reduce the budget deficit largely but selectively through public spending cuts, local government ministers in 2010-11 faced the problem of explaining to the public that they’d be cutting central government grant funding of council revenue spending by an unprecedented 28% in cash terms (40% in real terms, allowing for inflation) over four years, with 21% ‘front-loaded’ in the first two years.

The scale of ministers’ task can be seen in a simple but powerful chart in a recent House of Commons research paper, in which the dark green columns represent the savage annual average percentage cuts in councils’ grant funding, in contrast to the generally modest increases to which they’d been accustomed. Their solution: to replace the nasty dark green columns with much less alarming light green ones.

Game1 First, they – or their civil servants – restructured the whole grant system, to make before-after comparisons more difficult. They then created their Revenue Spending Power measure, which they claimed would – by including council tax receipts, certain specific grants, and NHS social care funding – give a fuller picture of a council’s overall financial position.

Fuller, yes, but not full. Contrary to what is stated in the Government’s Plain English Guide to the 2015-16 Grant Settlement (para. 3)  income from fees, charges and investments is NOT included in SP. These are income sources likely to decline in a recession and whose addition to SP would emphasise, rather than de-emphasise, councils’ grant dependency – so nothing like as politically helpful as the contrived SP measure, which could instantly reduce a 28% grant cut to a 14% cut in spending power.

Ministers, then, view SP in the same way as Humpty Dumpty in Alice Through the Looking Glass. It can mean just what they choose it to mean – or more, or less. If, say, they excluded council tax receipts from SP, any percentage grant cut would immediately become more (bad). If, on the other hand, they could include the whole of the new Better Care Fund (BCF) – a single pooled budget to incentivise the NHS and local councils to work more collaboratively – any cut would immediately become less (good).

Yes, of course it’s confusing; that’s its whole point. Present the public with two, three or more magnitudes of ‘spending power cuts’, and the chances are we’ll either turn off altogether or hear the one that’s shouted loudest: the Government’s. For 2015-16, as we’ve seen, the Government’s figure is 1.8% – or possibly 1.6%.

Neither the figures nor ministers’ form of presentation came, by this time, as a surprise, and the Local Government Association (LGA), attempting to get its retaliation in at least simultaneously, released its own figures to coincide with ministers’ announcements. These showed first that the Government’s total funding support to local authorities will be cut by 13.7% from the 2014-15 figure. It’s that F-for-funding word again, so ministers didn’t bother mentioning it, but it’s shown as a provisional figure in the Commons chart.

The LGA’s second calculation was that, if council tax income were excluded from SP – since it’s a completely different type of income from government grant – the average reduction would be not 1.8%, but 3.7%. Third, if you also exclude the NHS’s portion of the £3.5 billion Better Care Fund and include in SP only the estimated £2 billion spent on social care services by local authorities, the arguably rather truer average reduction in councils’ revenue spending power becomes 8.8%, or nearly five times the Government’s figure.  

CIPFA’s analysis, as we’ve already seen, was different again: a 6% drop in spending power – through including council tax income but excluding ring-fenced grants and the Better Care Fund. To adapt the old Punch cartoon caption: you takes your choice of definition, but you still loses your money.

And that spending power cut, to repeat, is the average for all English local authorities – and even under the Government’s SP figures, individual authorities could lose up to 6.4% of their spending power, though others would receive a nice little increase. But, especially with a General Election imminent, ministers like Kris Hopkins want to persuade us that their settlement “offers a fair deal to taxpayers all over the country; north and south, rural and urban. Councils facing the highest demand for services continue to receive substantially more funding and have about 40% higher spending power than authorities facing less pressure.”

That last sentence really is disingenuous. Any formula or block grant comprises both a redistributive element, to compensate for local authorities’ differing needs, and a negative ‘resources’ element, to reflect their differing ability to raise their own money through council tax. Even this government hasn’t contemplated abolishing the redistributive principle altogether. But let’s see how it judges that its way of doing things offers a ‘fair deal’ to taxpayers, regardless of where they live.

Again, I’ll start personally. I pay my council tax to Birmingham City Council, whose cut in spending power, according to the Government’s figures, is 6%, close to the maximum 6.4%. Cuts for other West Midlands metropolitan authorities run from Sandwell (5.1%) and Wolverhampton (5%), through Walsall (4%), Coventry (3.9%) and Dudley (2.8%) to Solihull – the sole Conservative-controlled council and, as it transpires, the only one whose SP will increase (+0.4%).

So Birmingham’s cut is proportionately the greatest, despite, as noted in Sir Bob Kerslake’s recent highly critical report on the council for the Government, having “more poor children than anywhere else in England” (p.6), and being overall one of the most multiply deprived authorities in the country.

According to the DCLG’s ranking of England’s 326 local authorities by multiple deprivation – Birmingham is 13th most deprived, Sandwell 9th, Wolverhampton 20th, Walsall 35th, Coventry 53rd, Dudley 113th, and Solihull 212th – almost precisely the same order as that for percentage SP cuts and, on the face of it, a non-obvious operationalisation of a ‘fair deal’.

Local Government Chronicle and the Association of North East Councils undertook a similar exercise on a larger scale, again using the Government’s SP measure. As shown in the chart, “the most deprived 10% of areas face a 5.2% cut while the most affluent tenth will see their funding rise by 1.5%”.

The Rich Gain As the Poor Lose With apologies for the length of this blog, that’s what this particular local-central argument is fundamentally about – a little more than just the niceties of statistical presentation.

An earlier Birmingham-focused version of this post appeared in The Chamberlain Files Chris Game - pic

Chris Game is a Visiting Lecturer at INLOGOV interested in the politics of local government; local elections, electoral reform and other electoral behaviour; party politics; political leadership and management; member-officer relations; central-local relations; use of consumer and opinion research in local government; the modernisation agenda and the implementation of executive local government.

You couldn’t make it up – except DCLG just did

Chris Game

Did you see manager Arsène Wenger’s explanation of Arsenal’s feeble performance against Manchester City last Sunday?  While most players are galvanised by home supporters and see playing at home as an advantage, Arsenal’s apparently are scared by theirs. “They have a great desire to do well, so maybe they’re a bit too anxious that they don’t respond completely to the expectation level of the crowd.”

A strong bid, certainly, for this week’s You-couldn’t-make-it-up prize, were it not for the Department for Communities and Local Government (DCLG), who, not satisfied with inventing their own measure for disguising the severity of their grant funding cuts to councils, have now disguised it still further by double-counting. If the whole grant-slashing exercise weren’t so serious, the ineptitude really would be laughable. Ridicule aside, it can only serve to validate and reinforce the allegations of unfairness that core city leaders in particular have been making.

Nick Forbes, Newcastle City Council leader, kicked off in November, writing personally to David Cameron to complain about the ‘unfair’ impact of funding cuts on councils like Liverpool with cheap housing and therefore a low council tax base. Then on December 19th, local government finance settlement day, the leaders of all seven English core cities – Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle and Sheffield – wrote jointly to Local Government Secretary, Eric Pickles, demanding an urgent meeting to address the “looming financial crisis” their authorities were facing.

The scale of the potential crisis was illustrated by reference to the Jaws of Doom’ graph – Birmingham’s version of Barnet Council’s now famous and similarly apocalyptic ‘Graph of Doom’, produced by the London borough to shock residents, but particularly Ministers, into realising that by 2020 councils would be facing a £16.5 billion shortfall, with no money left for anything apart from children’s services and adult care.

The ‘Jaws of Doom’ graph appears in Birmingham City Council’s budget consultation document (p.8) and does indeed resemble the gaping jaws of a crocodile, attacking from stage left, but unable to swallow the monstrous £600 million budget deficit for which the council estimated, last October, it was heading – and now, following the finance settlement, closer to £625 million.

jaws of doom

This is on top of the £275 million of mainly ‘efficiency and transformational’ savings, including a 25% staffing cut, already made over the past two years, and that have brought the council to the point where the Labour administration, elected last May, claims further efficiency savings are no longer enough. The severity of the reductions in government grant will necessitate significant cuts in front-line services. Hence the budget consultation: outlining the Council’s proposed four-year savings programme, and seeking residents’ views on detailed service cuts for 2013/14, and on alternative council tax scenarios – a further freeze, a limited increase of under 2%, or a larger increase requiring referendum approval.

One question, however, that the consultation document neither asks nor, judiciously, attempts explicitly to answer is: IS IT FAIR?  So I thought I’d have a go.

Are Birmingham and urban councils generally, or Labour councils, or the most deprived areas, being particularly harshly treated by these grant funding cuts? Or was Pickles right, when he insisted in his finance settlement statement that “overall the average spending power reduction for councils in 2013/14 is expected to be limited to just 1.7% per household”, and that “concerns that the poorest councils would suffer disproportionately are well wide of the mark”?

Well, let’s start right there, with that phrase ‘spending power’ (SP) reduction – used by Pickles and his civil servants in preference to the ‘grant reductions’ quoted by council leaders and measured by the ‘Jaws of Doom’. Are they different? You bet. SP was introduced in 2010/11, when the new Government announced its intention to cut central government grant funding of council revenue spending by an unprecedented 28% in cash terms (nearer 40% in real terms, allowing for inflation) over four years, with 21% ‘front-loaded’ in the first two years.

To disguise the savagery of that front-loading, and to make before-after comparisons more difficult, the DCLG first restructured the whole grant allocation system, and then created ‘revenue spending power’ – a measure Ministers claimed that, by including council tax receipts, certain specific grants, and NHS social care funding, gave a fuller picture of a council’s overall financial position. Fuller, yes, but not full. If it really was a full, rather than politically beneficial, picture that Ministers wanted, they could have included income from fees, charges and investments. These, however, are income sources that tend to decline in a recession and whose addition to SP would emphasise, rather than de-emphasise, councils’ grant dependency – so nothing like as helpful as the DCLG’s contrived measure, which could instantly reduce a 28% grant cut to a 14% cut in spending power.

You’d think this was sufficient, but this year, it seems, they’ve really over-egged the pudding by double-counting council tax support in two separate elements of SP. Sadly, at the time of writing, the Department was refusing to help Local Government Chronicle journalists with their enquiries into how the double-counting occurred, and whether it was intentional or accidental. Either way, Pickles’ claim of an average 1.7% spending power cut in 2013/14 was clearly wrong and should have been about a percentage point higher.

Having changed the system and invented new terminology, Ministers’ next rule is always to describe funding reductions in overall percentages, not cash. This fools no one who gives a moment’s thought to how grant funding works, but then there are plenty who don’t.

Formula Grant – the general grant allocated in the annual finance settlement – is calculated in four blocks, the two key ones being Relative Needs, to compensate for areas’ differing service needs, thereby broadly reflecting economic and social deprivation; and Relative Resources, reflecting the strength of an area’s council tax base and ability to raise its own revenue. In combination, these two elements mean some councils are much more reliant on central government grant than others. The more deprived the area, the greater is its need for council services, the lower its council tax base and tax receipts, and therefore the higher the proportion of its revenue spending that needs to be funded by central grant.

Overall in 2012/13, 27% of councils’ revenue spending is funded through council tax. But that proportion ranges from averages of 16% and 22% among Inner London and metropolitan boroughs to over 50% among shire districts. Even neighbouring councils’ grant/tax ratios can differ considerably – like Birmingham’s 84% grant/16% council tax and Solihull’s 67%/33%. What can be presented, therefore, as a uniform 10% grant cut across the country means for Birmingham a budget cut of 8.4%, for Solihull one of 6.7%, but for some shire districts barely 2%. Not so uniform after all.

The reforms to specific or targeted grants have hit councils in deprived areas relatively harder still. Some grants specifically conceived for deprived communities, like the Working Neighbourhoods Fund and area-based grant, have been run down or scrapped altogether. In contrast, the Council Tax Freeze grant to councils agreeing to follow the Government’s tax-freeze policy comprises a 3.5% addition to a council’s existing tax revenues, so benefiting most those with higher tax bases. Likewise, the New Homes Bonus Scheme, funded by top-slicing the central grant to all authorities by equal proportions, benefits disproportionately those in the south, where the bulk of the building is.

Obviously, there have been and will continue to be numerous other technical changes in the grant funding system, with criss-crossing impacts on different kinds of councils. Even a year ago, though, the Audit Commission’s Tough Times report was clear that “there is a strong link between local deprivation and the scale of funding reductions”, with “deprived areas in the north, the midlands, and inner London [experiencing] the greatest cuts”.

There have been several comparisons of the scale of funding cuts across individual local authorities, among the most accessible being the Guardian newspaper’s analysis and interactive map. English local authorities were found to be facing, on average, a cut of £61 a year per person in the total central government funding they would receive between 2011 and 2014, but the range extended from over £250 per person in Hackney, Liverpool and Knowsley to North Dorset’s £2.70.

The severity of cuts correlated closely with the Government’s own Index of Multiple Deprivation (IMD), examples including Liverpool – IMD 2nd, funding cut 2nd (₤252); Manchester – IMD 4th, funding cut 5th (₤210); and Birmingham – IMD 13th, funding cut 16th (₤166). Of the 30 councils facing the severest cuts, 28 are currently Labour controlled. All of which suggests – returning to Pickles’ other bluster from his finance settlement statement – that “concerns that the poorest councils would suffer disproportionately” are not so wide of the mark after all, and certainly not as wide of it as his own 1.7%.


Chris is a Visiting Lecturer at INLOGOV interested in the politics of local government; local elections, electoral reform and other electoral behaviour; party politics; political  leadership and management; member-officer relations; central-local relations; use of consumer and opinion research in local government; the modernisation agenda and the implementation of executive local government.