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Budget 2010: local government comment

June 22, 2010

LGiU members can view a full briefing on the budget here. Our comments on the key announcements for local government are below.

25% Real Term Cuts

The budget reveals that “Once the Government’s commitments on protecting health and overseas aid are taken into account, other departments could see average real cuts to their budgets of around 25 per cent over the four years.” The final split between Annual Managed Expenditure and Departmental Expenditure Limits will be decided at the Spending Review on the 20 October 2010. This means local authorities will need to produce contingency plans to reduce their budgets by a quarter over four years. However, details on where the further reductions will take place will be announced in October 2010.

Public Sector Pay

Public sector pay freeze for those earning over £21,000 for two years from 2011/12. There will be a flat rate pay increase for public sector workers earning less than £21,000 in both years. Pay will also be frozen in 2010-11 for civil servants who are yet to agree a legally binding pay deal, except for those earning £21,000 or less, who will receive at least £250 a year. These civil servants will exit the freeze ahead of other groups.

National Insurance Contributions

The Government inherited plans for National Insurance rates to increase by 1 per cent in April 2011. This will remain. However, part of the planned increase in employer National Insurance Contributions will be reduced by raising the National Insurance threshold by £21 a week above indexation in April 2011. This represents a net benefit to local authorities as employers because the expected NI tax increase they will have prepared for will be lower.

Public Sector Pensions

Public sector pensions are subject to an investigation by John Hutton into their affordability. He will deliver an interim report on September 2010, which will identify short term savings. More extensive reforms will be detailed in the full report before Budget 2011. The Government will consult on whether to abolish the default retirement age, with a view to begin phasing it out in April 2011.

Children’s Services

The real pain for children’s services will be contained in the autumn spending review. Departmental cuts of 25 per cent for non ring-fenced departments signal a dramatic statement of intent. Directors of Children’s Services will be concerned that their will be insufficient time to terminate contracts that are no longer affordable and build in protection for the most vulnerable.

The immediately obvious impact of the Budget is on benefits and welfare spending. Some of the measures announced impact directly on children’s services: in particular the announcement that the government will restrict eligibility to the Sure Start Maternity Grant, abolish the Health in Pregnancy Grant from January 2011 and freeze Child Benefit. Children’s services professionals will be concerned about the impact that this will have on children, in particular the poorest, at what all Parties agree is the most vital stage of development. The government has assured, however, that Child Tax Credit will be better targeted on low-income families to ensure a minimal impact on child poverty in the next two years.

There will also be concern that the capacity of council’s to step-in and provide effective support to families that are struggling will be compromised by the significant reduction in departmental budgets and the abolition of the ring-fence on services for the most vulnerable.

Housing Capital

The potential good news for housing is the Chancellor’s announcement that the government will not make any additional cuts to total capital spending in the budget beyond the previous government’s plans. However, he also said that “we will still make careful choices about how that capital is spent. The absolute priority will be projects with a significant economic return to the country. Assessing what those projects are will be an important part of the autumn spending review.’
It is not clear how well new housing will fit these criteria. The statement seemed to emphasise the importance to the economy of capital projects such as transport infrastructure, but not housing construction. Housing will, in any case, see major cuts as they were present in the previous administration’s plans. It is not clear what will happen to the programmes frozen by the Homes and Communities Agency at the end of May.

From April 2013, housing entitlements for working age people in the social sector will reflect family size. Housing Benefit awards will be reduced to 90 per cent of the initial award after 12 months for claimants receiving Jobseekers Allowance. This will be introduced in April 2013.

The most radical change is that from April 2011, maximum limits on housing benefits will be introduced: from £280 a week for a one-bedroom property to £400 a week for a four-bedroom property. The package reduces the costs of Housing Benefit by £1.8 billion a year by the end of the Parliament, or 7 per cent of the total budget.
The changes will have a major impact on claimants but also on landlords. Housing associations may be concerned about future income streams. Tenants living in large homes may find it difficult to move or meet the additional costs. There is a huge problem with mobility (and problems with overcrowding and under occupation) in social housing – whether these reforms in isolation will be the key to positive change in open to question, without much increased supply of new affordable housing.

Infrastructure

The regions of the north are winners in this Budget. They will be keen to see the details of the white paper, which promises local leadership in job creation and capital projects. While it is good news for big infrastructure, as the budgets tighten there will be a concern that smaller, revenue heavy but sustainable programmes are dropped, such as cycling or parks.

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