From welfare to warfare: Sunak’s spending shift imperils local services again
Talking tough on “sicknote culture”, stopping the boats and offering billions of pounds extra for defence spending. Ahead of local elections in England and Wales this week, Rishi Sunak has been in campaign overdrive.
With the prime minister suffering the joint-lowest satisfaction rating of any Conservative or Labour leader since 1978, experts are predicting a drubbing for the Tories, with the party expected to lose as many as half the seats it is contesting. The prominent Tory mayors in the West Midlands and Tees Valley, Andy Street and Ben Houchen, could be ejected from power.
It comes at a time of financial crisis for England’s system of local government, with more local authorities going bust in the past three years than in the previous three decades. Levelling up is all but abandoned; transformed from a flagship government promise to an afterthought.
Yet, in the policy blitz before the local elections, the prime minister’s priorities have clearly been focused elsewhere as he offers rightwing red meat to Tory rebels who could use poor local election results as a prompt to try to replace him.
Sunak’s focus on welfare reform, the Rwanda bill and extra cash for the military is not though without consequence for local government, at a time when England’s town halls are crying out for more funding after years of austerity and the fallout from economic headwinds hitting their budgets.
Experts on the public finances warn that raising the defence budget from 2% of national income to 2.5% by 2030 will mean difficult trade offs for government. One of three outcomes is required: higher taxes; adding to borrowing; or cutting expenditure elsewhere. Sunak, however, is not seriously engaging in these trade offs.
The prime minister has said his plan is fully funded, by switching research and development funding elsewhere for the military, alongside a 70,000 reduction in civil service headcount. Economists, however, warn the numbers simply don’t add up.
Reducing expenditure on warfare over recent decades had helped allow for an expansion in the welfare state, labelled by economists as a “peace dividend” in the public finances. In recent times, however, weak economic growth and spending pressures from an ageing population have made this balancing act much harder. Reversing the decline in military spending will mean adding to these headwinds yet further.
The Institute for Fiscal Studies estimates the beefed-up defence settlement means unprotected government departments will now face real-terms cuts of about 4% a year after 2025 – equivalent to about two-thirds of the cuts imposed at the peak of George Osborne’s post-2010 austerity drive.
The Institute for Government warns that such “fictitious” spending assumptions undermine the quality of fiscal debate, and threaten the government’s credibility with the public finances when those policies are inevitably changed.
If the prime minister does follow the logical conclusion that spending cuts are required to balance the books, local government is most likely to be the hardest hit – following the pattern of the 2010s, when grant funding was slashed by 40%.
Councils are, however, already under intense pressure, as the cuts collide with the recent period of sky-high inflation, and as their services come under growing pressure from an ageing and increasingly unwell population.
Despite ministers adding an extra £600m to top up council funding plans for next year, MPs and council leaders from across the political divide say local authorities are still £4bn short in an “out of control” financial crisis. That’s even after a bumper £2bn increase in council tax this spring, tacitly approved by ministers, which means residents will end up paying more for services that are getting worse.
Ministers have sought to blame problems in certain local authorities on
mismanagement and incompetence, rather than admit any responsibility.
There are legitimate grievances in several authorities, where councillors dealt an awful hand by government bet the farm on risky commercial projects in their gamble to survive and lost badly.
This week the blame game in the West Midlands will go into overdrive as the region’s Tory metro mayor, Andy Street, aims to make political capital out of Birmingham’s effective bankruptcy under a Labour administration. However, it’s noticeable the former John Lewis boss is also distancing himself from Sunak before Thursday’s vote.
In contrast, Labour prioritised a response to the councils crisis at the launch of its local election campaign, saying it would offer longer-term funding settlements, more devolution, and an end to the “begging bowl culture” of forcing local authorities to bid for centralised pots of cash. All good things, but without much extra financial firepower they risk being inadequate for the scale of the challenge.
This week, the prime minister might have bought himself a little time against his party rebels. But it is at the expense of Britain’s rapidly crumbling public realm.