Councils face £6.5 billion shortfall as Pickles slashes budgets

Local authorities in England face cuts in jobs and services after “the toughest local government finance settlement in living memory”, councils warned today.

Councils will lose up to 17% of their funding from central government grants for 2011/12 and face a total funding shortfall of £6.5 billion over the next year, the Local Government Association said.

But Communities Secretary Eric Pickles said no council would suffer a reduction in its total spending power of more than 8.9% next year or 2012/13, once receipts from council tax and NHS support for social care is taken into account. The average reduction in spending power will be 4.4%, he told the House of Commons.

Mr Pickles said the local government settlement was “progressive and fair” because steps had been taken to protect the poorest areas which rely most heavily on public sector services.

He announced an £85 million transitional grant to help councils deal with changes to their funding, as well as a £650 million fund to reward authorities which freeze their council tax bills. And he said that measures had been taken to ease the “frontloading” of cuts into the first two years of Chancellor George Osborne’s four-year spending review period.

Mr Pickles said: “By adopting an intelligent and fair approach to the way funding is allocated, we have been able to ensure those parts of the country that are most reliant on central funding continue to get the lion’s share of the taxpayers’ money that is available. Funding fairness underpins this settlement.”

But his claim was challenged by Labour’s Caroline Flint, who told the Commons that the coalition Government was imposing “unprecedented cuts on town halls the length and breadth of the country”.

The Conservative chair of the Local Government Association Baroness Eaton said: “Councils now face incredibly tough choices about the services they continue to provide and those they will have to cut.”

Lady Eaton added: “This is the toughest local government finance settlement in living memory.

“A few councils have seen a reduction in the money they receive from the Government of up to 17% in the first year. As a result councils face a total funding shortfall of £6.5 billion over the next year.

“We have been clear that the level of spending reduction that councils are going to have to make goes way beyond anything that conventional efficiency drives, such as shared services, can achieve. We have to face the fact that this level of grant reduction will inevitably lead to cuts in services.”

The settlement was announced as Mr Pickles published his Localism Bill, which he said would bring about fundamental change to the way councils operate by devolving more decision-making power to local level and removing central controls over the way money is spent.

The Bill paves the way for elected mayors in 12 cities, popular referendums to veto excessive council tax rises, a power for communities to take over local services like libraries, pubs and shops and a greater neighbourhood say in planning and housing development.

Councils will also be given new financial incentives to encourage business enterprise in their areas.

“Taxpayers are no longer prepared to write a blank cheque for the public sector. But they do want less interference in their local communities from Whitehall government,” said Mr Pickles.

“So the coalition Government is delivering the most significant shift in power from officials in London to elected local councils in a generation.”

But Ms Flint said that the devolution of power offered by the Government meant councils were expected to shoulder “the most devastating cuts in funding for a generation” while taking the blame for difficult spending decisions.

David Sparks, the leader of Labour Local Government, described the announcement as “the most dire financial settlement we have ever witnessed for local government, which will have stark ramifications for communities up and down the country”.

Frontloading the cuts into the next two years would deny councils the scope to reduce costs through advance planning or natural wastage, warned Cllr Sparks.

“The way the cuts have been foisted upon councils means many will have no choice but to act swiftly,” he said.

“Services and jobs that could otherwise be saved will have to be cut, and people will soon start to see the effect of this in their neighbourhoods.”

The GMB union said the number of council jobs cut or threatened with the axe across England, Scotland and Wales in recent weeks has reached almost 74,000, with fears that services will now be “slashed” in the New Year.

And Chris Keates, general secretary of the NASUWT teachers’ union, said that “every local council worker now has the shadow of redundancy hanging over them”.

“Given the savagery and depth of the cuts, the coalition Government must abandon its pretence that so called ‘frontline’ services can still be protected,” said Ms Keates.

“Cutting grants to local authorities will inevitably mean that planned, reduced school budgets will have to be stretched even further.

“Today’s announcement is not about tackling the deficit. It is yet another example of the irrational contempt in which the coalition Government holds public services and those who deliver them.”

The Local Government Information Unit thinktank said that the combination of the finance settlement and the Localism Bill will lead to “unprecedented change in our public services and in the governance of Britain”.

LGiU chief executive Andy Sawford said: “The finance settlement will be very tough for councils and there is no doubt that some, if not all, will have to make major cuts in spending.

“At the same time the Localism Bill envisages a brave new world in which councils are free to lead their communities and citizens are free to challenge the council. We absolutely support this aim, but it’s important to be realistic and acknowledge the difficulties that must be faced.”

Martin Johnson, deputy general secretary of the Association of Teachers and Lecturers, said: “After all the talk, schools know that for the first time ever the guaranteed minimum per-pupil funding is a cash cut and a real-terms hammering.

“The next few months will be an anxious time for school staff as they wait to see how this plays out in their local schools, but they know that very few schools will not suffer, even when the paltry pupil premium is taken into account.”

The chair of London Councils, Hackney Mayor Jules Pipe, said: “London Councils called for the frontloading of these cuts to be eased. The Government has taken a step in this direction, but frontloading remains at the heart of the settlement – the cut in April 2011 is almost 50% higher than in year two.

“London’s councils are already planning for improved efficiency, shared services and new approaches to service delivery. The scale of these reductions is so large that no combination of these is sufficient to protect the services that Londoners expect to be funded.”

David Congdon, Mencap’s head of campaigns and policy, said the mental health charity was “very concerned about the severe cuts outlined in the local government finance settlement”.

“The reduction in funding to local councils and removing ring-fencing to local government grants will inevitably mean significant pressure will be put on social care funding,” said Mr Congdon. “These savings cannot be made by efficiencies alone and they will impact on services and care for those with disabilities.”

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations welcomed measures in the Localism Bill to allow communities to bid to buy local assets.

“The community rights measures are a welcome step towards giving people a greater say in how things are run at local level,” said Sir Stuart. “Community assets, both buildings and land, can play a key role in strengthening communities, as a focus for community life and a resource to support local enterprise.”

He added: “The local government settlement announced today is another important piece of the jigsaw for the voluntary and community sector, and the decisions to be made over funding in the coming months will be one of the most significant steps in determining the success or failure of Big Society.

“Councils must avoid seeing the voluntary and community sector as a soft target, as vulnerable and disadvantaged groups stand to lose the most if vital services are cut.”