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|Table 2: Trends in Current Expenditure Provision|
|Cash Terms||Constant Terms|
|Source: Cosla Financial Information Services|
Over this period, inflation has been of the order of 2.5% to 3% per annum. I have therefore recalculated the figures through the Treasury's GDP deflation, and this shows that in real terms, the provision for current expenditure has fallen by 5.0%. The fall in current expenditure is of interest to our later consideration of the consequences of these changes They denote, however, the Government's assumptions over spending levels.
In addition, I have mapped out below the actual outcomes in terms of local budgets, which vary marginally from the Government's plans, as councils make differing assumptions about pay settlements, running costs etc.
|Table 3: Trends in Local Spending|
|Cash Terms||Constant Terms|
These figures confirm the trend highlighted earlier, with modest cash growth but reductions in real terms of 3% in local budgets for the first two years. In the current year, the Government has increased the capping limit to 5,753 millions, but as noted earlier the bulk of this increase was earmarked for additional spending on education. This was a very tight settlement, and the cash sums available to support existing services constitute a real reduction of 84 millions, and with HM Treasury's inflation forecast of 2.75%, in real terms the shortfall is 142 millions, or 2.6% (Carmichael and Midwinter 1998). Overall, these real reductions are greater than anything achieved by the Thatcher Governments (Midwinter and Monaghan 1993), although councils have not received as much as Government plans assumed.
Trends in Taxation
In the first half of the decade, Government support for local services was increased to stabilise local tax bills. Since reorganisation, the removal of transitional arrangements and the tightening of public expenditure policy has altered this environment Aggregate Exchequer Finance (AEF) is the total of Government determined support for local authority current expenditure, composed of revenue support grant, specific grants and non-domestic rate income (popularly known as the business rate), and this is distributed between authorities on the basis of their GAE assessment. Government strategy has been to reduce its share of local funding sine 1994-5. It reached a peak of 88.9% in 1991-2, after the problems with poll tax, and began falling in 1994-5. As we show in Table 3 below, AEF has actually fallen in cash terms since reorganisation, and the grant percentage (of Relevant Expenditure) has fallen by 2%.With a high gearing effect (ratio of 7:1) this of itself would push council tax up by 14% over the four years.
|Table 4: Trends in AEF since Reorganisation|
|Year||Total Grant||Grant Percentage|
| % Change since 95-6
in cash terms
| % Change since 95-6
in constant terms
|Source: Cosla Financial Information 1998-9|
This substantial erosion of grant support made council tax increases inevitable, and the increase for Scotland in cash terms was 32%. The average Band D Tax is displayed in Table 4 below. But, whereas the Government had permitted some relaxation of spending and did likewise over its plans for AEF, this meant in effect a cash standstill over AEF provision in 1997-8 (+0.6%). Considered with the growth in capping limits of 3.4%, councils were in effect permitted to spend more in the current year through funding from local taxation.
|Table 5: Trends in Local Taxation since Reorganisation|
|Band D Council Tax|
|% change in cash terms||+32%|
|% change in constant terms||+22%|
|Source: Cosla Financial Information|
The new Government's approach assumed a council tax rise of 7%, but in practice it was less at 5.6%, approximately twice the level of inflation. whilst it did not seek to change the level of tax increase, it did take action to shift the burden between areas. Donald Dewar reported this action to Parliament thus:
"... a number of significant technical changes are working their way trough the grant distribution arrangements, and I think that it is clear tat it is acceptable tat fluctuations in the way we distribute grant should cause big creases or decreases in council tax levels wholly unrelated to the spending decisions of the councils themselves. I have had careful discussions with Cosla about a grant safety net to reduce these fluctuations.... Therefore, in this year's grant distribution I will ensure that major changes in GAE assessments are phased in gradually, and tat there will be a council tax safety net in the system which will restrict the effect of grant distribution changes on council tax levels."
(Scottish Office Press Release, 2 December 1997)
Fluctuations in the post reorganisation period have been considerable because of problems which arose over disaggregating the budgets of the former regional authorities, and the assumptions made by Government over te scope for efficiency gains from reorganisation. The trends for individual authorities are mapped out below. Authorities with the highest increases tended to be those who lost resources from the impact of reorganisation. Those who suffered most from the mismatch problem all incurred above average increases in council tax, including Argyll and Bute, Dundee, Glasgow, Midlothian and West Dunbartonshire.
|Table 6: Trends in Council Tax since Reorganisation|
|Argyll & Bute||642||881||+37|
|Dumfries & Galloway||525||731||+39|
|Perth & Kinross||587||732||+25|
Manpower figures for local authorities are monitored and published every three months by the Joint Staffing Watch of the Scottish Office and the Convention of Scottish Local authorities. However, mapping longer term trends is complicated by the discontinuity of the series and by the fact that by 1995, authorities staffing levels were already experiencing reorganisation effects. The trend in the period 1988-92, however, is clear enough, and is one of gradual, modest increase in line with a similar growth in spending. (Joint Staffing Watch 1997). Thereafter, coinciding with the return of retrenchment and pay policy, the downward trend returns. Figures are also complicated because of the transfers of responsibilities which took place. The impact of the pay policy was an important factor -
"the Government has confirmed that for the fifth year in a row
the effects of any pay settlement will require to be absorbed within councils budgets. This has had a cumulative effect on the level of service cuts which councils have required to make amounting to around 350 millions in the four year period of the pay policy to date."
In the pre-reorganisation period the expectation was that minimal job loss of 300-1,800 staff would result from the structural reforms, with the majority of staff simply transferring to the new authorities -
"The vast majority of those employed in local government will be transferred. Plainly a school which comprises a number of teachers of say French or Science on 31 March 1996 will need the same teachers on the following day, ie the teachers will transfer. As I have said, the vast majority of staff will transfer, so we are talking about a relatively small number of people who will not transfer."
(Hansard, 13.7.94, p 1894)
The assumption, was, therefore that most of the job loss would be in administrative and clerical posts, not front-line service delivery. However, the Staff Commission became increasingly concerned that actual numbers would be much greater because of the deteriorating financial context The Joint Staffing Watch reported a loss of 11,100 PIE posts in the two ye&s from June 1995, and of this reduction 7,800 occurred immediately on reorganisation, with a further 3,300 from December 1996 to June 1997. A further 600 staff have gone in the three months to September 1997, making a total loss of nearly 12,000 staff, or 5%.
Nor have the job losses been confined to administrative or secretarial posts, with major job losses in Central Support Services, education, social work and roads and transport.
|Table 7: Service Staff Reductions since December '95|
|Central Support Services||-2483||-15.9|
|Roads and Transport||-1406||-21.6|
|Arts, Sport and Leisure||-281||-6.1|
|Libraries, Museums and Galleries||-137||-3.4|
|Source: Joint Staffing Watch 1998.|
These changes may wen be presented politically as 'efficiency gains', but they in fact constitute reductions in service delivery. Ministers have been advocating reductions in class sizes, but this will require extensive reinvestment in schools to allow this. Comprehensive data does not exist to quantify the complete impact on service levels. Some examples are available however.
Despite the emphasis on care in the community, and increased longevity,
1996-7 some 81,559 people received a home care service, compared with 91,738 two years earlier, a reduction of 10,179, or 11%. (Accounts Commission 1996, 1998). Teacher staffing levels fell from 67.3 per 1000 pupils in 1995-6 to 62.0 per 1000 pupils in 1997-8. Spending on transport subsidies fell from 15 per capita to 9 per capita in the same period. Th short, council taxpayers were paying more for less services in return.
The post-reorganisation period has been one of cutback management. Spending, manpower and service levels have been reduced, and council tax bills have risen substantially. At the moment, the Conservative expenditure plans require a cash standstill in government funding for 1999-2000, which will maintain the current cycle of decline. Even the relaxing of capping in the current limits did less to ease pressure on councils, as this assumed 2.1% would be reflected in additional prioritised resources for education, and only 1.2% to support existing services, when inflation was forecast at 2.75%. Cosla calculates the sum available in the current year for growth as a mere 0.7% (Cosla 1998). if the present plans are maintained, then more of the same will follow.
The political strategy of the Government for local government is two-fold - maintain "sound finance" and invest in education". Sound finance is interpreted as requiring firm control of spending levels, and only borrowing to invest. In local government, this approach has been the norm for many years. Councils are legally required to balance budgets, and borrowing is mainly used to finance capital programmes.
Sound finance, however, also requires governments to provide adequate resources for the programmes under their control. The present pay policy has resulted in persistent underfunding by this criteria. what governments have done is to disregard the impact on service levels on the pretext that pay increases can be accommodated without service consequences through efficiency gains. This is the politics of wishful thinking. The continuation of the present approach will simply reinforce present trends.
Because of the reorganisation effect, it is difficult to predict precisely the consequences of continuing underfunding. If we examine those aspects of local government which the reforms assumed had scope for efficiency gains, then we can attempt to isolate such effects. We cannot do so with precision, as the "mismatch" effect of reorganisation clearly was a cause of job loss in cities like Dundee and Glasgow. The combined job loss in corporate, central support, and housing management since reorganisation is around 2000, slightly above the maximum forecast made by the government in its modelling exercises. This leaves around 10,000 posts which have gone mainly because of financial constraints. Funding fell by 5.4% or 315 millions in two years and budgets by 3.1% or 181 millions. If the government sticks to the Conservative plans next year, and inflation for that year is around 2.75%, then the shortfall will be around 150 millions for that year, the biggest squeeze yet on local funding. If additional resources are provided on an earmarked basis for education, then the burden of cutbacks will fall on other services. In broad terms, we have seen that a 1% reduction in funding results in 2000 job losses, (excluding the reorganisation effect). If the Comprehensive Spending Review does not eliminate the underfunding resulting from the pay policy, then this pattern of job loss and service reduction will continue.
The Government therefore has a clear choice. It can continue cutting spending and services in the mode of its predecessor, or restore financial stability to grants and local taxation. That political choice should be made clear to the people of Scotland, and not concealed in the rhetoric of sound finance and efficiency gains which is misleading and inaccurate.
29.5.98 Professor Arthur Midwinter
McConnell, A (1997) "The Recurring Crisis of Local Taxation in Post-War Britain" Contemporary British History, Vol 11, No 3 Autumn, pp39-62.
Midwinter, A and McGarvey, N (1997a) "The Reformed System of Local Government Finance in Scotland" Policy and Politics, Vol 25, No 2, pp 143-152.
Gibson, J (1990) The Politics and Economics of the Poll Tax (Wolsely: EMAS).
Midwinter, A and McGarvey (1997b) "Local Government Reform
Managing the Transition" Local Government Studies Vol 23 No 3, Autumn pp 73-89.
Carmichael, P and Midwinter, A (1997) "Downsizing City Government in Scotland", paper prepared for the Urban Affairs Conference, Houston, USA.
Heald, D A (1994) "Territorial Public Expenditure in the United Kingdom", Public Administration, Vol 2, Summer, pp 147-175.
Scottish Office (1996) Serving Scotland's Needs (Edinburgh HMSO).
Midwinter and Monaghan, C (1993) From Rates to the Poll Tax : Local Government Finance in the Thatcher Years, (Edinburgh : EUP).
COSLA (1998) Financial Information 1997-98.