The cost of living crisis hitting workers is also having its impact on the finances of local councils – which are responsible for over a fifth of all spending on vital public services.
Rising prices have increased the fuel costs of refuse trucks, care workers’ cars, and school transport services, while soaring energy costs have hit budgets for schools, children’s centres, care homes, swimming pools, libraries and street lighting.
Council budgets were agreed in January, based on the government’s autumn 2021 spending review settlement which factored in inflation of about 3%.
But six months later the consumer prices index is rising by 9.1% and a new council funding ‘scissors’ looms, with projected spending for the 2022-23 financial year no longer balancing with income.
The Sigoma group of 47 urban authorities, covering around a quarter of all English council spending, warns of a combined ‘unanticipated deficit’ of £570m amongst its members due to inflation.
The London Councils group estimate is £400m for the 32 London boroughs.
“This is the worst crunch in terms of inflationary pressures on council budgets we’ve seen for decades”, said the chief executive of the Chartered Institute of Public Finance and Accountancy. (The Guardian, 18 June) “Councils face really difficult decisions in terms of services and capital projects”, with emergency cuts likely.
The overall gap for English local authorities is projected at £2.4 billion.
Against this backdrop a new provision in the Levelling-Up and Regeneration Bill – introduced in parliament in May by the Housing and Communities secretary Michael Gove – is significant.
Tucked away in clause 71 of the Bill are proposals for new powers for the Secretary of State to issue financial ‘risk-mitigation directions’ to an individual council.
These interventionary powers could set a limit to a council’s borrowing, instruct it “to divest itself of a specified asset” – sell-off council property, for example – and/or require it to take any other “appropriate and proportionate action” to address financial risk.
Why is the Tory government taking on new powers against council borrowing? And what does this mean for the anti-cuts strategy pioneered by the Trade Unionist and Socialist Coalition (TUSC), in which the Socialist Party plays a leading role, of using councils’ prudential borrowing powers and reserves to set ‘balanced’ no cuts budgets as part of building a mass campaign for proper government funding?
This call was taken up at the 2021 Unite union policy conference last October with a motion adopted demanding that Labour councils set “legal, balanced no-cuts needs-based budgets”. If the Bill is passed, will that still be possible?
The fact that new legislation is being proposed is itself confirmation that the TUSC approach has been a viable strategy that councils could have pursued, if the political will to fight the cuts during the last decade or so of austerity had been there.
How many times instead were anti-cuts campaigners and local authority trade unions told by Labour councillors that there was ‘nothing they could do’ other than implement the cuts and that borrowing was ‘illegal’?
There was even a ruling made at the Communications Workers Union (CWU) conference in April that a motion from the Coventry branch calling on the union to adopt the same policy as Unite could not be debated on the grounds that it “encouraged Labour councillors to act illegally”.
But if using councils’ borrowing powers was already ‘acting illegally’ why is Gove now seeking new legislation to curb it?
Councils in Britain cannot go bust in the same way as a private company can.
A court could appoint a receiver if a council defaulted on its liabilities but it would not be the equivalent of a private sector bankruptcy in which a company is wound up (and creditors risk losing their money).
Only an act of parliament can dissolve a local authority. This makes council finances implicitly underwritten by central government.
To maintain some central government control of council finances therefore local authorities are legally required to set a ‘balanced budget’ each year before they can issue council tax bills, set service charges etc.
If a council meeting was to deliberately approve an ‘unbalanced budget’ the council chief finance officer would serve a Section 114 notice to block council departments from non-statutory expenditure and prevent the issuing of council tax bills.
But the legal position still leaves significant discretion in the hands of councillors over their authority’s borrowing capacity (and council reserves), the use of which are, by statute, a ‘matter of judgement’.
Faced with twelve years of austerity that has seen central government ‘revenue support grant’ core funding for councils cut by more than 50% since 2010, many local authorities have significantly increased their borrowing, with the aim of generating income for services.
One estimate from the Institute of Fiscal Studies was that in 2020 over 30 councils received at least a quarter of their annual income from commercial investments, having borrowed £7.6 billion since 2016.
Another financial innovation has been to use capital receipts (from leasing a council-owned building, for example) to meet repayments on borrowing (the ‘minimum revenue provision’) rather than taking it from a council’s revenue account (used for spending on services), which has reportedly generated £700m to support day-to-day council spending.
These manoeuvres, however, were not seen as part of a strategy to force more resources from central government.
Rather, they were viewed as a self-sustaining alternative funding model for local government, even by Labour council leaders perceived as being on the left.
Paul Dennett, the mayor of Salford, for example, responding to the Levelling-Up Bill, lamented its potential impact on his city, where an investment programme increased business rates by £2.7m between 2017 and 2019.
“If more central funding is not an option for councils, then borrowing and growing asset bases is an essential component of successful local government policy”, he said. (Labour List, 26 May)
But why isn’t winning ‘more central funding’ from government an ‘option’, if left-wing councillors used their positions to build a mass campaign for the resources their communities need?
Even on its own terms the ‘borrow to earn revenue’ approach has not delivered.
In Salford there have still been substantial cuts to council jobs and services, with Dennett himself admitting that the council “has managed job losses of almost 50 percent of our work force since 2010”, albeit with only “small numbers of involuntary redundancies”. (Sensible Socialism: The Salford Model, in Tribune, 19 January 2021)
In other cases the investments have turned sour, with Covid hitting councils with stakes in shopping centres, cinemas, hotels or, in Luton and Manchester, the local airport.
The inflation spike has impacted widely but particularly on council-backed energy co-ops – small providers in a market dominated by giant monopolies ruthlessly protecting their own profits.
From just one Section 114 notice signalling an ‘unbalanced budget’ being issued in twenty years – to the Tory-controlled Northamptonshire county council in February 2018 – the last two years have seen notices issued in Croydon, Slough and Northumberland, and ‘imminent risk’ declared in another twelve authorities.
Clause 71 of Gove’s Levelling-Up Bill aims to streamline the process of intervention – with commissioners already in place to oversee council finances in Liverpool, Nottingham and Sandwell as well as Croydon and Slough – as the threat of wider municipal financial failure looms.
So would the new rules mean that a fighting council would no longer have any means to manoeuvre and avoid cuts while it built a mass campaign? That there really would be nothing that councillors could do other than cut council services and local authority jobs and conditions? No, absolutely not.
Firstly, councils’ powers to borrow without government permission remain as before, with the ability to raise finance where they can afford to service the debt without specified government funding, known as ‘prudential borrowing’.
What will be different though will be the government’s ability to intervene without a months-long review or best value inspection being undertaken first.
But nevertheless, even from a legal point of view, an intervention by the Secretary of State will still have to follow a formal, and challengeable, process.
Notice must be given and, to issue a ‘risk-mitigation direction’ at the end of it, the government must be able to show that “regard” has been given to “written representations” from the council, including on “the likely impact of the direction on the provision of services to the public”.
An intervention by the Secretary of State against a council borrowing because it was not prepared to cut local services, in other words, would be a more explicitly political act than hiding behind a council chief finance officer.
And that carries risks, even when dealing with supine Blairite Labour councillors.
During the clash over the imposition of ‘tier three’ restrictions in northern cities when faced with the second wave of Covid in autumn 2020, the Greater Manchester Combined Authority mayor Andy Burnham won broad public support for his initial refusal to cooperate with the government.
He demanded an extra £34m be given to the region to ensure the revised furlough scheme covered 80% of wages (instead of the 67% then being proposed) and funding for local test and trace.
Eventually, after a few days as a media hero, he retreated, for an extra £4m instead, after Labour-led councils in Lancashire and the Liverpool region accepted the government’s terms.
But the episode gave a glimpse of what a genuine fight could have achieved.
Showing the difficulty the Johnson Tory leadership have in mollifying their own base, The Guardian reported that local Tory councillors and MPs, conscious of the mood on the ground, were “much more hardline than many of the Labour council leaders”, urging Burnham to “hold out against the government”. (21 October 2020)
It won’t be easy for the Johnson claque to push through a new austerity agenda on local government.
That will be especially so in the context of a rising movement of workers against the cost of living crisis.
An even more significant example from the pandemic was the rebellion in May 2020 by teachers against the unsafe full re-opening of schools.
As a result of the teachers’ resistance, in which as many as 20,000 individual National Education Union (NEU) members logged into a Zoom meeting to discuss action, 18 Labour councils found the courage to declare that they would not direct schools to re-open on June 1 as instructed by the then education secretary Gavin Williamson. After making threats of legal action and financial sanctions the government was forced to retreat.
Now local government workers and teachers are gearing up for a battle over pay, with the local government unions, UNISON, GMB and Unite, submitting a joint claim for £2,000 or an RPI-linked rise (currently 11.1%), whichever is the higher for each individual.
With pay accounting for 50-60% of local government costs councillors will be under enormous pressure to demand new government funding to meet the claim.
Unite now has policy for councils to set needs-based budgets, which include decent pay. And, whereas in the past the right-wing national UNISON leadership has actively discouraged branches campaigning for needs budgets, the Time For Real Change national executive council elected in 2021 – the first left majority on the NEC in the union’s history – will be under pressure to take a similar stand.
No lead can be expected – on the contrary – from Keir Starmer’s Labour Party, with council Labour groups a stronghold of the Blairite right-wing for decades, including for the period of Jeremy Corbyn’s leadership.
But even this edifice can begin to crumble under the pressures that are building.
An eight-strong Liverpool Community Independent Councillors Group has been formed in opposition to the Labour council’s cuts policy, led by Anna Rothery, who was blocked from standing as Labour’s city mayoral candidate in 2021 because of her backing of Jeremy Corbyn.
Meanwhile the right-wing Labour mayor and council in the east London borough of Tower Hamlets was defeated in May’s local elections by the Aspire party, led by the formerly disqualified and now newly returned mayor Lutfur Rahman, campaigning against Labour cuts.
The battleground is being reset but the struggle to defend local public services and jobs and conditions is entering a new phase.