A New World of Finance: Business Rates & Beyond Rob Whiteman Chaired by Cllr David Borrow

cipfa.org Anticipating Comprehensive Spending Review Rob Whiteman CEO, CIPFA e: / t:

cipfa.org Outline:  Funding - impact of CSR cuts to date  Protected vs Unprotected  Who are the winners / losers within local government?  Key battleground areas going forward  CSR projections (25 th November)  Where does that leave us?

cipfa.org Funding context  Only part way through the cuts  Real-terms cuts in non-protected services of £19bn (12.6%) between and (38.1% since )  Not much room for under-delivery, only planning to achieve balanced budget in  Real-terms protection for NHS - but unlikely to be sufficient for growing needs / demography  Significant cash-terms cuts in local government funding

cipfa.org Good news, bad news  Position and forecast for funding for services has actually improved - looked worse in Autumn Statement  Allegations that some public services going back to the 1930s.  March 2015 Budget projection looked very challenging; “big dipper” effect looked odd; expected a flatter profile.  July Budget is both flatter and reflects the improved economic position (OBR).  Flat in cash terms in July Budget – but includes protected services, additional NHS commitment, and likely new burdens (childcare).

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Protected services  More than half DEL is spent on protected services  Government commitments:  NHS - £10bn increase in real terms by  MOD – increase by 0.5% per year in real terms  Schools – protect per-pupil funding  International Development – spend 0.7% of GNI  Ramps-up required cuts in other services

cipfa.org Protected services

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Estimated cuts to LG funding

cipfa.org Unprotected services  HMT has asked departments to exemplify savings of 25% and 40%  Consistent with CIPFA estimates (12% in and , 6% in and )  Who will get below-average cut in funding?

cipfa.org Key battleground: social care  Social care spending decreased by £1.6bn over last 5 years  Real-terms cut estimated at £4.6bn, of which, demographic pressures (£1.75bn) and price increases (£1.25bn)  Reduction in preventative spending for first time in  Continuing reduction in the number of people receiving social care support

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Local authority financial failure?  Warning signs? And who is checking?  Financial failure or service failure first?  Taking action – Section 25 robustness of estimates; Section 114 deficits  Some authorities more exposed than others:  Social care/ children’s services – demand-led services  Reliant on Government grant rather than local taxation, and no growth in tax base  Developing an index – next slide

cipfa.org Local authority financial risk measures

cipfa.org Distribution between authorities  Major redistribution of resources since 2010  Greater weight placed on local taxation and incentives  Some anomalies remaining in funding formula (pre-2010 settlement not tackled – e.g. damping)  Some authorities have had increases in spending power; others 10% year-on-year cuts in spending power

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100% business rates retention  Chancellor announced plans to increase LG retention of business rates from 50% to 100% by end of parliament  Has numerous technical challenges – but not new money  Will favour those with largest business rates growth (and lowest needs)

cipfa.org Key messages re funding reality  Local Government is not a priority  Protected services will continue to take a bigger percentage of spend and put more pressure on unprotected areas  NHS likely to overspend and break vote allocation  Welfare reform impact – after House of Lords vote?  RSG likely to end by end of this parliament  The longer term may see benefits of devolution, rate retention and integration  Short to medium term there is no good news – Sorry!

cipfa.org Financial reform  Really exciting times – localism, regional tax, business growth retention  Need to know more on mechanics, redistribution/ equalisation plans  How will grant changes and new burdens impact?  Councils must forecast, plan and look for more radical options to balance the books  Full fiscal autonomy is key, but so too a balance between Localism and Fairness  Far greater risk of insolvency and s114 notices than ever before  My Advice: Don’t spend your reserves!