The Depths of the Cuts and the Uneven Geography of Local Government Austerity

A paper written by Dr Mia Gray and Dr Anna Barford from the University of Cambridge Department of Geography and Centre for Business Research performs an analysis of local government budgets to investigate the effects of austerity since 2010. It concludes there is a large variation in the cuts to spending in different parts of the country as a result of central government austerity policies. 

The report highlights 3 key findings which are (i) local governments have a shrinking capacity to address inequality, (ii) there is an increasing inequality between local governments themselves and (iii) there are increasing issues of territorial competition.

The analysis aims to compare spending cuts across local governments using data from the Institute for fiscal studies (IFS). This data shows the grant dependence of local authorities (the proportion of their budget which comes from central government grants) and the money spent on local services. To allow comparison over the period 2009-2017, budget streams where local government responsibilities have changed significantly in this period are excluded. Excluded budget streams include education, police and fire.

Local government austerity

The local government section of the Department of Local Government and Communities received the largest cut to its budget in the period of austerity from 2010 to 2015 of all government departments. The real change to budget of government departments from 2010- 2015 is shown in Figure 1. Local government lost over half of its funding between 2010 and 2015. This has led to significant rescaling and restructuring of local government, in particular large cuts to central government grants to local government.

Figure 1: The real change to budget of government departments from 2010-2015

Central government grants

Central government grants are an important redistributive mechanism of funding between local authorities in the UK. The grants are allocated through a funding formula which allocates budgets to local authorities according to their need. The reliance of local authorities on this funding depends on their ability to raise funds through taxation and the public services they deliver.

Local authorities vary in their dependence on central government grants. The ability of a local authority to raise funds through taxation is dependent on the tax base and existing infrastructure in the area. The demography of the area determines the need for different types of public services.  One trend identified is that urban local authorities tend to be more dependent on central government grants. The report highlights that areas which receive a higher proportion of their funding through government grants are more vulnerable to budget cuts.

Effects of local government austerity

There is a notable relationship between the cuts in central government grants to local government and the cuts made to services.  Local authorities with the highest need receive the highest proportion of their budget through central government grants and therefore have been hit the hardest by austerity.  The recent caps on tax increases set by central government have further weakened local authorities’ ability to buffer against the cuts.  This has caused significant regional disparity in cuts to spending by local government.

Figure 2 shows the change in local government spending in England, Scotland and Wales between 2009 -2017. Cuts to spending are most concentrated in Northern England and in cities such as Newcastle, the Liverpool-Leeds corridor, and in London. In contrast, ’middle England’ and south central part of country had much smaller spending cuts.

Figure 2: The change in local government spending in England, Scotland and Wales between 2009 -2017

Analysis of the impact of reduced local government spending shows non mandatory services have suffered the largest cuts. For example, 343 libraries have been closed down in the UK between 2010 and 2015, with a loss of over 5700 professional staff in the same period. Additionally, while mandatory services such as adult social care are relatively protected, budgets for these have fallen in real terms. This has led to a decreased quality of services and higher eligibility thresholds for service users. The report argues that large cuts to public services weaken the ability of local government to address inequality.

Change in central- local government relations

During austerity there has been a move to increase the devolution of local government. Devolved powers offered to cities allow local governments to make decentralised decisions about their spending and public services. However, the centralised local government funding system means local governments are still highly dependent on decisions made in central government.

One measure to aid devolution is the business rates retention scheme, in which local authorities retain 50% of their business rates. Previously business rates were taken in centrally and redistributed. The business rates retention scheme was intended to increase the power of local governments over their budgets and incentivise local government to support local business growth.  This has led to increased competitions between regions for investment. This could lead to issues of territorial competition such as a more lax approach to regulations and lowering of business rates to make more attractive business environments.

The report argues a devolved local state causes regional inequality in addition to austerity. The business rates retention scheme widens existing regional economic disparities as areas with high economic growth are likely to experience higher growth in business rates. 

Local authorities in England are looking a further £1.3 billion being cut from central government grants in 2019-20, which will only make matters worse.