English councils: the budget cuts that are threatening ‘levelling up’

Like those of many post-industrial English communities, Barnsley’s town centre is still graced by the relic of a bygone municipal era — a handsome Grade II-listed town hall, from which its local government once exercised considerable control over its budget.

Nearly a century after its construction, however, England is now one of the most centralised countries in the developed world. And with inflation eating into the real value of public spending, funding from Westminster is getting tighter for some councils.

The result is that even as ministers in London promise to “level up” the economies of former mining areas such Barnsley in South Yorkshire, the town hall’s wood-panelled chambers will soon witness their 12th annual round of budget savings in a row.

“Here we go again,” says Sir Stephen Houghton, the Labour politician who has been leading the council since before the start of central government’s austerity programme in 2010. The 38th poorest of 317 local authorities in England, Barnsley has already lost half its core budget, one of the biggest cuts in the country. It now needs to find another £21mn over three years due to the impact of inflation, around 8 per cent of its revenue budget.

“It is totally unrealistic,” says Houghton, to suggest there could be “fat left to trim”. 

Across Britain, there are growing signs that the public services are creaking, under intense pressure from inflation, the legacy of the pandemic and more than a decade of austerity following the 2008 financial crash. NHS patients struggle to get ambulances or wait days in emergency rooms for treatment; strikes are spreading from train drivers to nurses to teachers.

Local government, which is responsible for providing both the complex systems of adult social care as well as neighbourhood services such as bin collections and street cleaning, is at the sharp end of this reality.

Clive Betts, chair of the Commons levelling-up select committee and former Sheffield council leader, says that local government has seen “the biggest cuts of any part of the public sector” in the past 12 years, which have been equivalent to “essentially a 20 per cent cut in real terms”.

Ahead of November’s autumn statement, which boosted funding for councils, the Local Government Association warned of an “existential crisis” to the entire sector due to the impact of inflation — which increases the costs of providing some services and is leading to higher wage bills. A string of councils around the country are now controlled by central government because of financial failures. Even two large Tory counties in the more prosperous south, Hampshire and Kent, have warned of the risk of effective bankruptcy.

The mounting financial pressures provide a difficult backdrop for the government’s “levelling up” pledge to close regional economic divides. A new round of grants for this purpose, totalling £2bn, was announced by the government on Wednesday, but was wildly oversubscribed by councils.

In theory, post-industrial areas such as Barnsley, which have seen some of the biggest budget cuts, are now at the forefront of the “levelling up” agenda.

However, Joanne Roney, president of the Society of Local Authority Chief Executives (also known as Solace), says these new grants are “difficult to square” with the parallel financial crisis facing town halls. While promises of incremental devolution to new mayors are welcome, she says, “how that fits with your ‘here and now’ budget crisis in your council is hard to pair off”.

Disappearing libraries and buses

Local government in England has been reshaped by a protracted funding squeeze that withdrew £15bn from their budgets between 2010 and 2020.

As budgets shrank, a larger proportion had to be devoted to statutory social care provision — an average of about three-quarters, according to the LGA, compared with two-thirds previously. The result is that less and less remained for everything else.

A third of libraries closed and 14 per cent of the bus network vanished, according to the Institute for Government last year, with those losses greatest in the poorest places. Streets have become dirtier, parks more overgrown.

Less visible, but just as important, has been the parallel loss of the administrative capability that councils require if they are to implement plans aimed at reversing chronic economic decline.

“The capacity to think and understand what’s going on has been hollowed out for a lot of local authorities,” says Max Caller, a former council chief executive who over the past two years has carried out investigations for the sector and central government into a series of crisis-hit town halls.

“They don’t have the sorts of teams that do policy and programmes that actually research things, because they just can’t afford them. As the priorities within local government finance have led, these things just couldn’t be saved, because it’s very hard to justify that thinking capacity when you’re closing basic services.”

Cutting back on administration has been “a false economy”, says Houghton, at Barnsley. “Now councils are having to put it back because you need capacity in the core to do the regeneration stuff.” Such work takes time and expertise, he adds.

Big regeneration projects are not just expensive, they require project management skills that some councils lack. Barnsley has recently opened The Glass Works, a regenerated district that includes a covered market, NHS hub and shops, but planning for this initiative began before the financial crash.

“It took us 15 years,” says Houghton, pointing to a series of land deals spearheaded by partly by the council. “Places like Barnsley find it hard to get the private sector to do it, because they’re more likely to want to do it in Manchester or Leeds,” he adds. “If we hadn’t done it, it wouldn’t have happened.”

That administrative capacity is now needed more than ever. Since the 2019 election, a myriad of new Whitehall-controlled bidding funds have been set up, totalling well over £8bn. Martyn Cox, the Conservative leader of Bolton in the north-west, says his regeneration department “has become a bidding team” which has managed to secure considerable funding.

“This year and next year will see our biggest capital programme the town has had in living memory,” he says, highlighting a new medical college, park and leisure centre.

Nevertheless £50mn-£60mn has also been wiped off the town hall’s revenue since 2010, he says, and he is “worried” if the council can afford to maintain the new park.

“We’re sending the mixed message out of ‘we can build a medical school, we can build a leisure centre, but we can’t really cut the grass’,” he says.

Most of the new funds are awarded after a competitive bidding process. The National Audit Office, the UK’s public spending watchdog, said last year that although this process could help ensure value for money, it could also “inadvertently favour better-resourced local authorities with more capacity to bid, more ‘shovel ready’ projects to choose from, or more resource to afford consultancy support”. Barnsley’s executive director of growth and sustainability, Matt O’Neill, describes the system as “the poor competing with the poor”. 

However, Nottinghamshire county council leader Ben Bradley, who is also MP for Mansfield, says the new government funds could make a “tangible difference” to poorer places. “In the course of the next few months I expect to see bricks and mortar on some of these projects,” he said last week at a conference, referring to bids made by what he calls “one of the most disadvantaged communities” in the East Midlands.

“Some of these are big things — we’re building a big public sector hub in the town centre, reviving the town centre economy — and other things are really small, a little pot of money for improving car parking,” he added.

Applications to the funds are nevertheless time-consuming. One senior council official in a deprived northern area says that his authority’s bid to the first round of the levelling up fund in 2021 was more like a “thesis”, totalling more than 30,000 words, which took two months to put together and was then rejected.

“They don’t give written feedback. You don’t get any scores,” he says. “It’s difficult to know which bits you fell short on.”

They are also expensive. The LGA estimates each application costs a council, on average, £30,000; to bid for every single one available would cost about £2.25mn a year, an expenditure the LGA’s Conservative chair James Jamieson calls “nuts”. “That’s wasted time and resources,” he says. “It’s capacity of officers who, rather than writing a bid, could be looking at the vision for the place.”

In recognition of the criticism, the Department of Levelling Up, Housing and Communities has promised to “streamline” the many competitive pots and has allocated £125,000 a council for consultant support in drawing up bids.

More devolution

The government is not only making new funds available for regeneration, it is also talking about giving some power back to councils. Last year’s levelling-up white paper put English devolution at its heart, arguing “there is an empirical correlation between the degree of decentralisation of decision-making and spatial disparities in economic performance”. A series of mayoral devolution deals covering clusters of councils have since been signed.

Yet there are also signs of structural failure within the existing local government model. More and more councils are warning civil servants that they are financially at risk, while six town halls — Nottingham, Liverpool, Slough, Croydon, Thurrock and Sandwell — are now in Whitehall “intervention”, direct central involvement due to failures in finance and governance.

Those failures include commercial ventures such as borrowing to buy shopping centres or setting up energy companies, only for the risks to surface six or seven years down the line.

Caller, who has investigated several such councils, points to the findings of the Redmond review into local government audit, carried out for Whitehall in 2020, which noted a lack of co-ordination, experience and regulation of that activity.

Some town halls had also become “seduced” in recent years by the need to have a “greater” economic vision, adds Caller, while the basics fell by the wayside.

“You can’t do excellent until you do boring well,” he says. “Every day, local government still has to collect the bins. If you do that well, you can be excellent, but when you lose focus on the basics, everything falls apart and what the public sees is that Slough’s call centre takes 40 minutes to answer.” 

Questioned by MPs in November, secretary of state for levelling-up Michael Gove admitted Whitehall’s “early warning system” for local government failure was “imperfect”. 

“That’s one of the reasons why I think we need to have improved scrutiny — not control, but improved scrutiny — of local government’s budgetary position,” he said, of a new Office for Local Government being established in his department.

Some councils had borrowed money for commercial ventures “which, with the benefit of hindsight, they should not have done”, he added.

Professor Andy Pike at Newcastle University, is publishing a book this year on the “financialisation” of councils that have made speculative commercial investments. He argues that councils have actually been fairly “ingenious” in their attempts to plug funding gaps. The underlying financial crisis has been “knocked down the track”, he adds. “But it’s got to come to a point where there’s a tipping point.”

Relieving the pressure

After growing warning signs about the financial health of local councils, the government provided a higher than expected two-year settlement in December, which “continued an important shift away from austerity”, according to the Institute for Fiscal Studies.

The Department of Levelling Up, Housing and Communities highlighted a 9 per cent uplift over the next financial year, weighted towards deprived areas. The IFS predicts that “core funding” to local governments could increase over the next two years, although the result will depend on the impact of inflation, which raises costs and wages but could also boost some revenues.

Speaking to MPs shortly after the announcement, Gove conceded that the increase had to be “set against” previous cuts, adding that he did not seek to “varnish” the sector’s challenges. Extra money had nonetheless been provided for social care, he stressed, which “relieves some of the pressure” on other frontline services and meant “the level of alarm” in the sector “may be slightly lower than it was”.

The settlement has represented a “respite” for 2023, says Roney at Solace, which had prompted a “sigh of relief” across the sector. “I wouldn’t want to oversell it, I’m just grateful that it’s not as bad as I thought it was going to be,” she says, adding that it did not constitute a “fundamental rethink” of local government financing.

Local funding remains centrally concentrated to an unusual degree, in a system which Pike describes as “byzantine” and “super centralised”. Town halls — far from their municipal heyday a century ago — are highly reliant on direct grants from Whitehall. Increases to council tax, a local property charge, are capped centrally and based on a banding system created from outdated 30-year-old housing valuations.

Solace has called for a commission “to review the way local government is financed”, focusing not only on the total cash available, but “the regressive and ineffective taxation system” that supports it.

Bolton is another of the former industrial towns with a grand 150-year-old town hall looming over its shopping streets, the legacy of a different age. Cox, the council leader, says other European countries have a far better record of allowing towns and cities to level themselves up.

“An important part of this equation is that local government has some — and takes some — responsibility for revenue raising and is held accountable for allocating that,” he says of the approach in other countries. “The government has got to determine that a part of the taxation system that currently rests with central government needs to rest with local government.”

Nevertheless, he is not optimistic after hearing the same ministerial promises of decentralisation and levelling up for 20 years. Whitehall and Westminster continue to “overestimate” their ability to deliver on the ground.

“They’re trying to solve problems in areas that they’ve never been to, that they don’t understand, and yet feel they’ve got the intellectual licence to solve these problems,” he says. “And they haven’t.”