Spending Review 2010: local government implications | Practical Law

Spending Review 2010: local government implications | Practical Law

On 20 October 2010, the Chancellor of the Exchequer, George Osborne, announced the details of the government's four-year public spending plans in its Spending Review 2010. 

Spending Review 2010: local government implications

Practical Law UK Legal Update 2-503-6583 (Approx. 13 pages)

Spending Review 2010: local government implications

by PLC Public Sector
Published on 20 Oct 2010 • England, Wales
On 20 October 2010, the Chancellor of the Exchequer, George Osborne, announced the details of the government's four-year public spending plans in its Spending Review 2010.
This update focuses on the impact of the policy decisions set out in the SR 2010, it does not give specific details of the funding cuts (free access).
Speedread

Speedread

On 20 October 2010, the Chancellor of the Exchequer, George Osborne, set out the government’s four-year public spending plans in its Spending Review 2010 (SR 2010).
While the full implications of the SR 2010 for local authorities will not be known until later in 2010 when the Department for Communities and Local Government grant settlements will be released, the SR 2010 makes numerous announcements which will be of interest to lawyers advising local authorities, including:
  • Significant changes to the local authority grant system, with grants being consolidated and ringfencing removed.
  • Major reforms of the social housing sector.
  • Confirmation that a fairness premium will be introduced.
The SR 2010 also places a great emphasis on local authorities working together and with the voluntary and community sectors to deliver services and revising procurement practices generally.

Background

On 20 October 2010, the Chancellor of the Exchequer, George Osborne, set out the government’s four-year public spending plans in its Spending Review 2010 (SR 2010).
The June 2010 Budget set out the overall level of public spending for the four years from 2011/12 to 2014/15. The SR 2010 now sets out the allocation of these resources across all government departments, according to the government's current priorities. The budgets announced for each department are fixed but departments have the power to decide how best to manage and distribute this money within their areas of responsibility.
The June 2010 Budget announced that public spending, and not taxation, was where the most dramatic reforms to reduce the deficit lay, stating that there would be a reduction in public spending of £83 billion by the end of this spending review period (when inflation was taken into account). For more information on the June 2010 Budget, see PLC's landing page, Budget 2010.
For links to PLC's coverage of the SR 2010, see Legal update, CSR 2010.

Specific implications of the SR 2010 for local government

While the full implications of the SR 2010 for local authorities will not be known until later in 2010 when the Department for Communities and Local Government grant settlements for individual authorities will be released, the SR 2010 does make several announcements on how local government finance will be managed in the 2011/12 - 2014/15 spending review period:
  • While there will be cuts in funding, there will be a devolution of financial control to local authorities. Grant funding will be consolidated into fewer core grants and ringfencing will be removed from all grants except the simplified schools grant and a new public health grant.
  • Local area agreements and their accompanying targets will be scrapped and replaced by a new transparency framework, for more information, see Legal update, Local Area Agreements abolished.
  • 16 new local community areas will be created which will have some pooled budgets and provide greater freedom for multi-authority working.
  • The prudential borrowing system will be maintained and Tax Increment Financing, allowing local authorities to raise money against future business rate receipts, will be introduced. More details on how this will work will be released in a White Paper on local growth to be published shortly.
  • There will be additional funding of joint-working between the NHS and local authorities to support the delivery of social care.
  • Central government will support local authorities that reform the way public services are delivered, particularly through personalisation of service delivery and the use of the voluntary and community sectors (for more information, Cabinet Office below).

General implications of the SR 2010 for central government

The cuts in public expenditure outlined in the SR 2010 will see central government department budgets reduce in real terms by an average of 19% (excluding the Department of Health and the Department for International Development, whose budgets were ringfenced).
These reductions will not only require substantial cuts (see Implications of SR 2010 for individual central government departments below), but potentially also the sale of various government-owned assets, including:
The reduction in budgets will also require a widespread reform of public procurement practices, with a particular emphasis on centralising and rationalising procurement spend. The SR 2010 states that the government will:
  • Pay and tender for more services by results with simpler, innovative payment models.
  • Look at setting proportions of appropriate services across the public sector that should be delivered by independent providers (including by employee spin-outs and the voluntary and community sectors). Specific developments in this area are likely to follow a government White Paper on the delivery of public services, expected to be published in 2011.
For details of specific public procurement announcements in the SR 2010, see Cabinet Office below.

Specific implications of the SR 2010 for individual central government departments

Department for Education

In relation to education, the SR 2010 announced the following:

The introduction of a fairness premium

A new fairness premium worth £7.2 billion has been introduced over the four-year period of the SR. The premium is intended to support the poorest children in their early years and at every stage of their education and includes:
  • Extending 15 hours per week of free early years education and care to all disadvantaged two-year old children from 2010-2013 at an annual total cost of £300 million. The new provision builds on the existing entitlement to 15 hours of free early education per week for all three and four year old children.
  • Protecting Sure Start services in cash terms and including new investment in Sure Start health visitors. The intention is to refocus Sure Start on its original purpose, which was to improve the life chances of disadvantaged children through early intervention with those families needing the most support. The government’s hope is that reforms to Sure Start children’s centres will encourage more community providers to enter the market.
  • The introduction of a new pupil premium to support the educational development of disadvantaged pupils and encourage good schools to take more pupils from disadvantaged backgrounds. The pupil premium will rise progressively to £2.5 billion by 2014-15. For more information on the pupil premium, see Legal update, Consultation on introducing a Pupil Premium.
  • A National Scholarship fund of £150 million by 2014-15 to protect those on the lowest incomes in higher education to help more disadvantaged children attain a university degree by focusing the Education Maintenance Allowance of £30 (currently paid to 16 to 19 year olds who continue learning) on the most disadvantaged children and raising the participation age to 18 The suggestion to reform the allowance was received as part of the coalition government’s Spending Challenge, see Legal update, Spending Challenge website launched local government workers asked for cost cutting ideas.

Capital funding for new schools

Next steps

In order to set out how the school system and children’s services will be reformed and how the education spending settlement will be spent, the DfE has indicated that, in the next three months, it will issue:
  • A Schools’ White Paper.
  • A Special Educational Needs and Disability Green paper.
  • Further announcements about allocating voluntary sector grants.
  • Confirmation of local authority allocations for schools and early years provision.
  • An announcement on further programmes and bureaucracy that it proposes to end.
However, given the commitment in the SR 2010 that spending levels per pupil will not fall below current levels, it appears that schools have been spared significant spending cuts.

Department of Health

The White Paper, Equity and Excellence – Liberating the NHS published in July 2010, focused on the need to cut bureaucracy and improve efficiency in the NHS (see Legal update, Government publishes NHS strategy). This focus has been reflected in the Department of Health settlement in the SR 2010 where the government has announced its intention to ringfence funding for public health. The government has honoured its commitment to increase NHS funding every year over the duration of the SR 2010 but the NHS has also pledged to make up to £20 billion of annual efficiency savings by the end of the SR period. The impact of this settlement is set out in a letter from Sir David Nicholson, NHS Chief Executive (see DoH, The Spending Review settlement).

Reforms that will not be taken forward

A number of programmes announced by the previous government will now no longer be taken forward, among these are:
  • Offering free prescriptions for those with long-term health conditions.
  • The right to one-to-one nursing for cancer patients.
  • A target of a one week wait for cancer diagnostics.
The government has stated that these programmes will not be taken forward in order to ensure that spending is focused on priorities.

Social care

In its coalition agreement (see Legal update, Coalition agreement final version: local government implications), the government stated that it believed that there was an urgent need to reform the social care system to give individuals and carers more control over care. In the SR 2010, the government has announced that a commission on the funding of long-term care, led by Andrew Dilnot, will investigate alternatives for funding long-term care and then report in July 2011.
The government also proposes to increase the Personal Social Services Grant (the current Department of Health grant to local authorities for social care) by £1 billion by the end of the current SR period, merging it with the local government formula grant. In addition, the NHS will also be required to set aside £1 billion of its funding (by 2015) to fund new ways of providing services, for example, reablement services. Overall, social care services will receive an extra £2 billion a year by 2014-15. This additional funding is intended to help local authorities continue to provide access to social care services despite substantial local government funding cuts and will be provided alongside a variety of efficiency methods including extending the use of personal budgets and removing ringfencing around local authority resources in order to deliver improved outcomes for service users.
The Department of Health has also announced that in addition to the £2 billion funding for social care, there will also be two new grants issued over the SR period:
  • Learning Disabilities and Health Reform grant (an unringfenced, specific grant worth approximately £1.3 billion from 2011/12).
  • Public Health grant (which will be introduced from 2013/14).
These two grants reflect a transfer of responsibility for services from the NHS to local authorities.

Additional reforms

The Department of Health will also be adopting the following ideas, which were suggested by the public through the Spending Challenge process (see Legal update, Spending Challenge website launched: local government workers asked for cost cutting ideas):
  • No longer requiring Primary Care Trusts to deliver hard copies of “Your guide to NHS services” to every household generating savings of between £1.5 million to £2.5 million over four years.
  • Increasing the use of highly qualified clinical scientists in the NHS to free up doctors to focus on the work that only they can do, as part of the Modernising Scientific Careers programme, saving the NHS more than £250 million per year.
  • Encouraging the NHS to train radiographers to report on more of the straightforward x-rays in line with best practice so that consultant radiologists are free to assess the more complicated images, CT and MRI scans. This will save the NHS an estimated £7.9 million per year.

Department for Transport

The Department for Transport settlement includes protection for concessionary bus travel and continuing to link eligibility for concessionary bus fares to pension age changes and reform reimbursement.
The government in its coalition agreement set out its support for maintaining concessionary bus travel but agreed that reform of the system was needed. In September 2010, the government consulted on proposed reimbursement arrangements for the concessionary bus travel scheme in England considering how the scheme could be made more efficient (see Legal update, Consultation paper published on reimbursement arrangements for the concessionary bus travel scheme in England).
The government has also announced in the SR 2010 that local government resource grants will be reduced by 28% but the government will simplify the number of grants to give local authorities more financial autonomy.
Following the Spending Challenge launched in June 2010, the government will be considering various ideas raised by the exercise including:
  • Allowing the Highways Agency to charge back the cost of event traffic management.
  • Reducing the fuel costs of Traffic Officers by running vehicles on LPG or sharing fuel depots with other contractors.
For more information on the Department for Transport settlement, see Transport Spending Review Press Notice, DfT press release, 20 October 2010 and Legal update, Spending Review 2010: property implications.

Department for Communities and Local Government

Social housing

The government wants to make social housing more responsive, flexible and fair so that more people can access social housing in ways that better reflect their needs. In his statement the Chancellor announced:
  • Funding for social housing would be cut by 50%, from £8.4 billion between 2008/11 to £4.4 billion in the forthcoming spending review period.
  • Housing associations will be able to charge 80% of market rent to new tenants, with the aim of funding 150,000 new social homes. Increased flexibilities are also likely to mean that fixed-term tenancies may be offered to new tenants rather than "homes for life".
The SR 2010 also announces that:
  • Modest investment via the Decent Homes programme will be maintained to improve existing social housing stock.
  • The government will reform the National Register of Social Housing as part of work to disband the Tenant Services Authority (for more information, see Legal update, Review of social housing regulation published. This will reduce the reporting requirements on social landlords
  • The planning system will be reformed and a New Homes Bonus will be introduced to support economic growth and increase housing supply. For more information, see Legal update, Spending Review 2010: property implications.
  • The council house finance system will be reformed to give local authorities greater control and the opportunity to reinvest funds to meet local housing need.

Regional growth fund

The Department for Communities and Local Government will be a major contributor to the regional growth fund, which will target spending in areas currently over reliant on public sector support. For more information, Legal update, June 2010 Budget: implications for the public sector.

Home Office

Police forces will become more accountable to the communities they serve, through the introduction of directly elected Police and Crime Commissioners who will have a role in ensuring that resources are focussed on tackling the crime and anti-social behaviour of most relevance to local communities. This announcement was made earlier in July 2010 and the powers will be contained in a Police Reform and Social Responsibility Bill (see Legal update, Home Office and MoJ structural reform plans: local government implications). Local CPS prosecutors will also be empowered to respond to local concerns.

Ministry of Justice

The Ministry of Justice will work with the Home Office, Law Officers’ Departments and other partners to streamline and reform the criminal justice system and promote efficient use of the courts. The Government is already consulting on proposals to close 157 under-utilised courts, and will reform the court system to provide a more efficient service, using mediation and alternatives to court where possible (see Legal update, Consultation on closure of magistrates’ and county courts)
The government will also consult on major reforms to the legal aid system with a view to focusing support on those who need it most, increasing competition in the market and reforming remuneration for providers to ensure the legal aid system is effective and affordable.

Cabinet Office

Procurement and efficiency

Through the Efficiency and Reform Group, the Cabinet Office (CO) will be responsible for ensuring "improvement, cost savings and innovation" across central government. As part of this function, the CO will lead on the delivery of the shared services agenda and the rationalisation of procurement. Specific measures will include:
  • The mandating of commodity procurement.
  • Stronger scrutiny of major projects.
  • Better co-ordination of supplier management.
  • Ongoing efforts to secure savings from the renegotiation of existing contracts.
These proposals follow the publication of Sir Philip Green's efficiency review (for more information, see Legal update, Green's efficiency review calls for government to leverage credit rating and buying power) and the government's introduction of a requirement for details of all tenders worth in excess of £25,000 (£500 for local government) to be published online (for more information, see Legal update, Government policy on spending transparency: construction implications).

Big society

Through the Office for Civil Society (OCS), the CO will also provide support for the government's Big Society initiative, including:

Comment

Local government reform

In his letter to local authority leaders on local government and the spending review (see DCLG, Letter from Eric Pickles to Local Authority Leaders, Local Government and the Spending Review), Eric Pickles highlights the steps that local authorities are likely to have to take to meet the 7% annual reduction in budget that they are facing. These include:
  • Eliminating all traces of waste by becoming more transparent and improving procurement practice.
  • Maximising efficiency and productivity.
  • Sharing departments, officers and back office services between different local authorities.
  • Bringing excessive senior pay under control.
Even with the increased freedoms and flexibilities promised by the government, whether it be a removal of ringfencing on local authority grant funding or granting local authorities a power of general competence, it is clear that challenges facing local government are significant.

Growth and tax

The SR 2010 forms the most significant part of the government's attempts to reduce the deficit. However, the need for growth in the UK economy and increased revenues from taxation are also key to the chances of the government success, in particular there has been much discussion of the ability of the private sector to provide employment to the estimated 500,000 public sector employees that are at risk of being made redundant as a result of the proposed cuts. In this regard, the government has committed to supporting employees facing redundancy in making a successful transition to the private sector through Jobcentre Plus.
It has also been confirmed that the Office for Budget Responsibility has been asked to publish its autumn forecast on Monday 29 November 2010. The Chancellor will then make a statement to the House of Commons responding to this report. For more information, see Legal update, Chancellor's autumn statement not before 29 November 2010.

Equality issues

Alongside the SR 2010, HM Treasury has produced an overview of the impact of Spending Review 2010 on equalities (see HM Treasury, Overview of the impact of Spending Review 2010 on equalities), which sets out how the Treasury has complied with its legal duty to consider the impact of its decisions on men and women, people from ethnic minorities and people with disabilities.
The June 2010 Budget announcement was previously the subject of a judicial review application on the basis that HMT had failed to conduct a gender equality impact assessment (see Opinion, The Equality Act, impact assessments and a challenge to the Budget).

Next steps

As has been widely commented the true impact of the SR 2010 will not be fully known until the departmental budgets are allocated, with the government making it clear that individual employers in the public sector will determine the workforce implications of spending settlements in their areas.
The government has set out its next steps in its Executive Summary stating that, later in 2010, each government department will be required to publish a business plan setting out details of their individual reform plans, including:
  • Their vision and priorities to 2014-15.
  • A structural reform plan, which will include actions and deadlines for implementing reforms over the next two years.
  • Their contribution to transparency, which will include the key indicators used to show the cost and impact of public services and departmental activities. The government will consult on this to ensure that the “most relevant and robust” indicators are agreed in time for the beginning of the SR period in April 2011.
In order to implement some of the policy proposals set out in the SR 2010, the following documents are expected to be published by the government over the coming months:
PLC Public Sector will be tracking these developments.

Sources