North-East councils urge Eric Pickles to reconsider slashing their budgets by 25 per cent

Dear Secretary of State,

I write in response to DCLG’s current consultation on the Local Government Finance Settlement 2014/15 and 2015/16 on which you are inviting views from local authorities across the country. ANEC member authorities are keen to highlight a number of key issues arising from Government’s proposals that will have significant impacts for all 12 councils in the North-East.

As councils we need to be in a viable financial position to fulfil our statutory duties, meet the needs of the most vulnerable in society and to contribute and support in the way that the Government, people and communities expect us to – as well as to do everything in our power to create the conditions for economic growth. In the North-East we are dealing with the biggest cuts and have seen much higher reductions in spending power than the national average - presenting us with significant challenges. Given this backdrop, ANEC member authorities are concerned by the implications of the latest proposals contained in the consultation on resources for councils over the next two years.

We are extremely concerned that DCLG is proposing an extra £1bn of cuts to the core grant funding for services – bringing the cash reduction in core funding in 2015/16 to £3.1bn as opposed to the £2.1bn – 10 per cent cut – announced in the Spending Review. When added to the £2.4bn cut in 2014/15 the total cut escalates to £5.5bn.

Moreover, our analysis shows that the North East faces a disproportionately high share of this £5.5bn cut as a result of £351.5m of reductions being faced by this area of the country. Applying this to a per household calculation, the impact is an on average cut of £296 per household compared with an England average cut of around £233 per household. Adding to our concerns, are proposals to hold back or top-slice from local government core funding as much as £800m over the next two years.

What we are facing is a real terms 25 per cent reduction in core funding over the next two years. Cuts on this scale will mean that many services cannot be delivered without a change in the statutory duties councils currently have to meet. We are particularly concerned about the rising cost pressures in children’s services – with the North-East seeing the highest increases in the numbers of looked after children. In spite of efficiencies being achieved through the re-designing and sharing of services, savings do not compensate for the increase in cost pressures set against reductions in funding.

At a time when the Department for Education has already cut the children’s social care budget by 30 per cent, it is difficult to see how a further 25 per cent cut in core funding can be taken out of children’s services over the next two years.

Deeper reductions in the future will be felt by those in society who most rely on care and support. Not just children, but the elderly and adults with health and social care needs, which in an area like the North-East of England are more complex due to the legacy of our industrial heritage and current health inequalities. Pensioners who rely on concessionary travel for mobility and access to community and healthcare services will be impacted.

Demand and cost pressures on many statutory services are forecast to increase not decrease. In the expectation that such demands will continue to go up, it would mean that most of the £5.5bn cut will need to be found from a much larger cut in other public services. The impact of this will be felt on a broader scale by a wider population across localities.

There will be a knock on effect for budgets in areas such as planning and economic development which would run counter to North-East councils’ strong commitment to creating the right conditions for business growth and investment in their areas, in developing skills and promoting employment opportunities, in infrastructure developments and in forging strategic relationships with partners in the private sector. Local government is one of the few parts of the public sector which has an active role in promoting economic growth and has enormous potential to help Government re-balance the economy. The scale of cuts proposed over the next two years will inevitably put our ability to help drive economic growth and recovery at risk.

Given our concerns, as a group of North-East councils we would ask you to consider two alternative approaches to the local government finance settlement for the next two years.

Firstly, to allocate cuts on a simple equal percentage across all councils based on spending power which would be much fairer. Evidence gathered shows that a simpler application of an equal percentage cut in spending power (grant plus income) could bring significant benefits and help deal with the differential impacts of the current system across the country.

Secondly, to reduce the scale of the cuts by reducing the funding Government is intending to hold back or top-slice. The proposal to fund the new homes bonus (NHB) through an additional £680m, to be held back from local government core funding over the next two years, needs to be urgently reviewed. The damaging and disproportionate impact of the NHB scheme so far on the North-East leads us to strongly ask you to limit the scale of the NHB given its negative impact on budgets in other key services and to freeze the scheme at its current level.

Through Government finding ways to reduce the level of the additional cuts proposed by reducing grant holdbacks and top-slices, all councils will be helped in preventing further unnecessary service cuts and job losses.

We would be pleased to work with your department over the coming months to further develop thinking around these alternative proposals and to find solutions that would avoid unintended consequences for those areas of the country, such as the North-East, which are disproportionately impacted by the current proposals.

I look forward to hearing from you.

Yours sincerely Coun Paul Watson ANEC chair