Last week, the leaked Housden Memo said the Chancellor is drawing up plans to announce a further £10 billion reduction in welfare cuts. The memo points out the next spending review—set for 2013, though still up for debate—will need to see welfare reduced by £10 billion through 2016, otherwise other areas such as education will need to be cut further.
Whether the cuts amount to £10 billion in the end is less important than the notion that additional cuts are in the pipeline. Some of these cuts will affect national welfare spending (such as JSA), but it will affect local government spending as well. Looking back, these four facts below put the Housden Memo in perspective.
1. Local government's spending cuts to date are less than half of what is being proposed by the additional welfare spending cuts (both national and local). Since the 2010/11 Spending Review, local government’s revenue spending has fallen £4.4 billion (to £99.9 billion in 2012/13). That means local government’s spending power has fallen 8.7 percent (excluding reductions in education and highways/transport).
2. A £10 billion drop in welfare funding would be the financial equivalent of a 10% drop in local government revenue spending. Assuming education and transport are excluded, that is equal to a 20% decrease in local government spending (2012/13 local government spending power is £50.7 billion) on things like social care, housing benefit, and police.
3. Local government is saving for rainy (or rainier) days. Even in the wake of cuts, 80 percent of local authorities increased their reserves level in 2011/12. In total, this was £2.6 billion for 2011/12. Though, whether local government is willing to or should dip into their reserves to replace funding shortfalls is yet to be known.
4. Any cuts to national welfare budgets will hit local government budgets too. The Housden memo highlighted cuts to welfare in particular rather than specific areas within the local government remit. But, the cuts are very likely to include welfare programmes run by local government. Currently, the top areas of local government spend are:
- 34.9% education: has been relatively protected in funding
- 18.4% social care: expenditure rose £300 million from last year
Implementing £10 billion in welfare cuts is likely to have uneven effects across different functions of central and local government. While education has been largely protected compared to other areas, it is also local government’s largest bill, so that makes it more susceptible to cuts. A 1% cut in education funding is the financial equivalent to almost a 2% cut in social care of over a 3% cut in police funding.
In sum, local government’s spending power has fallen almost 9% since the 2010/11 Spending Review. The Housden Memo suggests further cuts could be equivalent to 20% reductions from 2012/13 budgets. Any further cuts that are passed on to local government will put pressure on them to find new ways to fund local services, be it through council tax, business rates or (less likely) reserves. But, it is likely the cuts will fall on a wide range of spending areas to meet Government’s deficit reduction targets.