Cllr Tim Pickstone, Association of Liberal Democrat Councillors and Campaigners (ALDC) Chief Executive, provides the local government perspective.
For the Prime Minister, and the Chancellor of the Exchequer to announce, as they both have in recent weeks, that austerity is ending is an insult to everyone involved in local government.
As all ALDC members will be too painfully aware, funding for local government has been cut by almost 60% since 2010 and there’s further reductions to come too (and let us not forget that local government cuts were happening pre-2010 too).
The reality of this squeeze on local services is evident everywhere. It is easy to point to the visually obvious like roads, while lines, cleaning, but behind the scenes the picture is even worse. Adult care services have failed so utterly to keep pace with rising demand that only the extremely needy can access support. Youth services are, in most areas, a chapter in a history book. Our local police services have seen 20,000 officers cut over the past eight years and they do not have the resources to investigate a high number of crimes. Local education authorities are a hint of their former selves.
And austerity is very much continuing. Despite the Chancellor’s announcements, in the next financial year, local government will have to make £1.3 billion in cuts. The LGA states that just to stand still and deliver the same services currently being provided – which have already been significantly cut in the last decade – councils would need an additional £7.8 billion more than they are expected to have in 2024/25. Extra bits of money for social care, schools, potholes and town centres are nowhere near enough the amounts needed to meet the rising level of demand or costs. None of these, of course, allow local government to make its own choices about local priorities. We’re being given crumbs and being told what to do with them.
The impact of this reduction in local services is now becoming painfully apparent. Not enough police = crime is rising. No local services = loneliness, particularly in older people, is at shocking levels. No youth services or children’s centres = mental health problems in children and young people is rising horrifically. No buses = congestion and air pollution are rising.
Local government is, of course, doing its best. Some councils, including our Liberal Democrat run and led ones, are finding innovative ways to get the best deal and the best services for their areas. When we are in opposition, or campaigning from outside the council, Liberal Democrats are championing their areas and standing up for the issues that matter for local residents.
Austerity, Mr Hammond, has created massive consequences on our communities and on people’s lives. Impacts that will last much longer than our memory of your few years at Number 11.
You had an opportunity to start to make this better. Instead you gave higher rate tax payers a tax cut and keep pushing on to the cliff edge of Brexit.
To find out more, join or support the work of ALDC, go to www.aldc.org.
* Tim Pickstone is Chief Executive of ALDC (the Association of Liberal Democrat Councillors) and is National Spokesperson on Grassroots Campaigning
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“As all ALDC members will be too painfully aware, funding for local government has been cut by almost 60% since 2010”.
Good to know ALDC are now opposed to the austerity applied with Lib Dem support in the Coalition Government back in 2010. Just wish they’d said it at the time.
Is austerity ending? Is the leopard changing his spots?
No – but the Tory messaging around it is changing because it has to.
From 2008 until last month it was, in Tory eyes, the necessary policy response to the financial crisis; in other words, it was voluntary. That was – and is – terrible economics that wrongly imagines that a monetary sovereign (a country that has its own currency) is subject to the same rules as a currency user (a private individual or company).
I infer that sometime in the last month the Cabinet received updated forecasts of the public finances that were shockingly bad. What was to be done?
The rosiest of the scenarios presented could be pimped and dished up for public consumption but that wouldn’t do going forward. Truth will out, and I think the forecasts showed a dire situation with a political choice between either (a) swingeing extra cuts or (b) pretending that ‘austerity is ending’.
If the former, then the Tories’ carefully cultivated image as the party of good economic management would go out of the window and their bête noire, Corbyn, would come in. If the latter, then they have a chance of getting through Brexit and the next election – or so they must calculate, especially as Corbyn is unlikely to challenge any deficits they may rack up.
In other words, what the Tories now propose amounts to a deficit that is politically involuntary. It’s deficit-spend or die for them.
But, before all the Modern Monetary Theorists (MMT) break into applause for the Tories’ apparent late conversion, a word of warning. MMT is fine as far as it goes but it is, at best, only half the story.
If it is to work in the long-run, deficit-spending must add to the economy by more than the interest cost – for example by increasing output with better infrastructure, training or whatever else is needed. So poor schemes like HS2 and Hinckley Point don’t cut the mustard, nor does having so much of the potential workforce so under-skilled nor favouring financial investment over productive investment etc. etc.
The Tories are terrible economic managers and always have been. So why do we let them get away with it?
“As all ALDC members will be too painfully aware, funding for local government has been cut by almost 60% since 2010”.
Not quite. Central Government funding for local government has been cut by almost 60% since 2010.
A pleasure to be able to agree with Councillor Shaw. To quote the Institute for Fiscal Studies, “The part of that coming from central government—mainly through grants—has fallen by 38% since 2010 (up to 2017), but the final reduction is 26% because they also raise money locally, which didn’t fall by as much.
However, it’s often forgotten that there are variations in this with Tory authorities receiving much more favourable treatment from the Coalition than the Labour authorities (even though Labour areas have more deprivation). The classic case was the bailing out of Tory Surrey.
Surrey council received boost in budget after ‘sweetheart deal’ claims …
https://www.theguardian.com/…/surrey-council-received-boost-in-budget-after-sweeth…
10 Mar 2017 – Surrey council received boost in budget after ‘sweetheart deal’ claims … to Surrey council, according to calculations made after government ministers …
Having said that, one can expect a bit of spresmic gilding of the lily by ALDC -whose job it is to praise those ‘Who fly the flag’ to no apparent purpose.
Debt friendly stimulus involves increasing taxes and raising government expenditure in the same proportion. That way, the debt/GDP ratio declines because the denominator (economic output) increases, not because the numerator (the total the government has borrowed) declines.
Keynesian stimulus policy is habitually described as deficit spending, not tax-financed spending. The fundamental economic problem that currently troubles much of the world is insufficient demand. Businesses are not investing enough in new plants and equipment. They are not adding jobs, largely because people are not spending enough – or are not expected to spend enough in the future – to keep the economy going at full tilt.
Debt-friendly stimulus might be regarded as nothing more than a collective decision by all of us to spend more to jump-start the economy. Simply put, Keynesian stimulus does not necessarily entail more government debt, as popular discourse seems to assume. Rather, stimulus is about making collective decisions to get aggregate spending back on track. The spending naturally involves different kinds of consumption than we would make individually – say, better public services, rather than more dinners out. But that should be OK, especially if we all have jobs.
Balanced-budget stimulus was first advocated in the early 1940s by William Salant, an economist in president Franklin Roosevelt’s administration, and by Paul Samuelson, while an economics professor at the Massachusetts Institute of Technology. They argued that, because any government stimulus implies higher taxes sooner or later, the increase may as well come immediately. For the average person, the higher taxes do not mean lower after-tax income, because the stimulus will have the immediate effect of raising incomes.
Some form of debt-friendly stimulus might ultimately appeal to voters if they are convinced that raising taxes does not necessarily mean hardship or increased centralisation of decision-making. When people understand that it means the same average level of take-home pay after taxes, plus more jobs and products of additional government expenditure (such as health and social welfare spending), they may well wonder why they ever tried stimulus any other way.
Equally important s raising taxes in the least harmful way i.e. with a focus on minimising deadweight costs. This implies reform of the tax system to ensure all forms of income and consumption (including consumption of housing services) are taxed on a equal basis with only areas like alcohol and tobacco duty and carbon emissions singled out for additional levies.
@ Gordon,
Good to see someone else make the same point about currency issuers and users!
The Lib Dems are still wedded to the idea that the Westminster Govt is a currency user though.This needs to change if the Lib Dems are going to be able to break free of artificial neoliberal constraints.
At the moment most Lib Dems agree that councils, education , the NHS etc needs better funding. So, the inevitable question of “where’s the money going to come from?” is asked. Out come the used envelopes and the pencils, and see calculations to the effect that if we put a 1p on income tax, or whatever, we’ll raise £N billion.
Of course it doesn’t work like that. Govt creates money when it spends and destroys it when it taxes. The difference between the two is what people save. So extra spending produces extra revenue. Increased tax rates only produce more revenue if everyone else saves less.
So yes we may have to increase taxes if we spend more on the NHS, education etc, but that’s because we’ll need to cool an overheating economy.
It’s really very simple but for some reason Lib Dems, supposedly the party of Keynes, prefers to think it’s the progressive wing of the neoliberals.
Peter,
Gordon’s points are well made – deficit-spending must add to the economy by more than the interest cost – for example by increasing output with better infrastructure, training or whatever else is needed.
Liberal Democrat economic policy is based around this concept of borrowing to invest or running a deficit with a purpose.
A failing of MMT and indeed all purely macroeconomic approaches to political economy is the lack of appreciation of the major role of taxation in redistribution and allocation of resources within the economy.
In the area of Land value capture and Land value taxation, the equity of resource allocation is the key consideration.
The value of land depends largely on what it is used for and where it is located.
Well-connected land in locations where people want to live, which is well served
by public amenities is more valuable than land without such advantages. But these
advantages are often not created by the land-owner or occupier but by society – or
public agencies acting on behalf of society.
This betterment of land occurs for three main reasons:
1. as a result of infrastructure improvements – (e.g. investment in roads, schools,
utilities and other public amenities);
2. when planning permission is granted that enables land to be put to a higher value
use for which there is need or demand (e.g. residential development rather than
agriculture); and
3. wider societal changes, such as improvements in the local, or national, economy that make a particular area more desirable to live in.
Attempts to capture land value typically focus on uplifts generated by public investment in infrastructure or the granting of development rights (i.e.the first two sources of betterment identified above). Land value tax is intended to capture uplifts generated by wider societal changes as well.
Both land value tax and land value capture are assessed on the basis of land value but land value tax is usually levied annually while land value capture is triggered by an event, such as planning permission being granted.
Progressivity in the tax system is largely focused on graduated rates of income tax and the use of personal allowances to lower the effective rate of tax on lower incomes.
@ Joe @ Gordon,
” …deficit-spending must add to the economy by more than the interest cost ”
This was the one questionable sentence in Gordon’s comment. It was good to see someone on the same page as myself at last so I decided not to say anything . But as Joe has seized up on it…..
The interest cost to Government is negative at the moment when inflation is factored in. And there is no reason this need ever change. The Government and not the market sets interest rates. By committee at the BoE in the short term and by open market operations, QE if you like, in the longer term.
So what are we saying? That deficit spending has to have some benefit which is higher than a negative quantity? That’s not too difficult.
Meanwhile….., in the real world….. the Care Quality Commission has issued a notice saying it has serious doubts about the future of Allied Healthcare. The CQC said it was concerned about its prospects from the end of this month, but the firm said the move was “premature and unwarranted”.
The company provides services, such as help washing and dressing, to more than 13,000 people across the UK. The CQC just has responsibility for England, where 9,300 people rely on Allied Healthcare services across 84 council areas, more than half the total.The regulator has written to all the affected local authorities as they would have responsibility to step in if services are disrupted.
It can’t be said often enough that this is an ongoing crisis (Allied aren’t the first) as a direct consequence of Local Authorities having to drive down contracts because of the Austerity cuts inflicted b y those in government post 2010. It is yet another reason why I, as a former Lib Dem Convenor of Social Care, am still angry with the Lib Dems allowing this to happen at the same time the top rate of tax was cut on their watch.
Government could bail out badly run banks…. (after Sir Vincent’s intervention)…. They should now review, reform and bailout the Care Sector.
And don’t anybody dare to give me any Laffer care nonsense on this supposedly Liberal site.
Adult social care is a real area of concern, David. There is a green paper due by the end of the year that the party will need to engage with. Norman Lamb has talked about a ringfenced health and social care tax, but it is hard to see how that can be effective in practice.
Larry Elliot writing in the Guardian last summer was unequivocal https://www.theguardian.com/commentisfree/2018/aug/02/scrap-council-tax-redistribute-wealth-fix-housing-market
” If taxes have to rise to pay for the health and social care needs of an ageing population, it is right that the main beneficiaries of the extra spending should make a higher contribution. To protect cash-poor but land-rich households who would struggle to meet higher payments, there would be a right to defer the tax until the property was sold or transferred.
Labour’s interest in a land value tax is welcome and long overdue. Every government since Major’s has known full well about the inadequacies of council tax, and one of the great missed opportunities of the 1997-2005 period was Labour’s failure to use its two thumping parliamentary majorities to bring about change.
Various excuses have been trotted out over the past 25 years for leaving council tax in place, none of them especially convincing. The real reason for inertia is political cowardice: a deep fear of a backlash from those doing well out of the status quo. And that’s not a good enough.”
With all due respect, Joe, this problem can’t wait for any theoretical land tax – and the present government certainly won’t implement one in the next three years if it survives that long.
What is needed is an immediate input of central government funds into local government to shore up the few services still run by local government, and to ease the downward pressure on contracts of those services that have been contracted out to privatised for profit providers such as Allied.
I wouldn’t have contracted these services out in the first place with all the fragility resulting from for profit enterprises… but unfortunately we are where we are. It is a sad shambles and a monument to the inhumanity of so called neo-liberalism as practised by Blair, Brown and then the Coalition.
Meanwhile Branson spends profits he makes from the Lansley Act (supported by the Lib Dems at the time) in a tax haven and on specious space projects …….. whilst 92 year old Mrs. Smith in Anytown (a D-Day widow by the way – so appease your conscience with a poppy) is waiting for her incontinence pad to be changed by a rushed and harassed care worker in fifteen minutes flat – and the care worker doesn’t even get paid travel expenses. It’s time for people to get out of their cosy complacency…. because one day it will happen to them.
PS my previous post should read ‘Laffer Curve’ – as currently practised by Trump D.
David,
the budget has set out the additional funding to be made available to councils for adult social care and children services. The budget allocated will not deal with the growing funding pressures. The central government grant will continue to be cut (in may cases to zero) and local authorities will become responsible for raising funds directly via council tax, business rates and direct charges.
What is needed is the ability for local authorities to raise adequate funds to meet their statutory responsibilities – that’s not theoretical that is what is happening over the next couple of years.
As Larry Elliott concludes in his piece “Various excuses have been trotted out over the past 25 years for leaving council tax in place, none of them especially convincing. The real reason for inertia is political cowardice: a deep fear of a backlash from those doing well out of the status quo. And that’s not a good enough.”
@ David Raw,
” this problem can’t wait for any theoretical land tax – What is needed is an immediate input of central government funds into local government to shore up the few services still run by local government”
Absolute right. There’s a place for a sensible land tax, in the mix of other taxes, but it’s not a magic ‘silver bullet’ type solution.
You’re still going to have to have a sensible answer to the question of “where is the money going to come from?” You can’t put a penny on income tax for local councils and the NHS and Social services and education and better pensions and the roads and the railways. That’s 7p on income tax already and there’s bound to be something else later. Its’s not going to work anyway.
Cuts in spending means cuts in revenue and a more depressed economy. Increases in spending means increases in revenue plus a more active economy at the possible risk of higher inflation if we are calling upon resources which aren’t present in the economy
That’s not Laffer -ether care or curve! That’s sensible economics!
@Joe,
“What is needed is the ability for local authorities to raise adequate funds to meet their statutory responsibilities – that’s not theoretical that is what is happening over the next couple of years”
This might be possible in Kensington and Chelsea or the more prosperous parts of the Thames Valley but it’s not going to work in Middlesbrough or Sunderland!
In any common currency union, and the UK is exactly that, money will always gravitate to other money. It is the job of central government to push it back again to where it is most needed. Significant central government equalisation funding of local government is a very good example of how it should happen.
It’s a simple lesson that the EU needs to learn as regards the eurozone too. There’s too much money ending up in the prosperous parts of Germany and Holland and too little money in the peripheral regions.
There is a HoC library briefing paper on the expected green paper on adult social https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8002
It is the green paper that the party will need to be prepared to engage with when it is published.
Domestic or parish rates were introduced as part of the Elizabethan Poor Law Act of 1601. The poor laws have long been replaced by the welfare state, but domestic rates continued until the poll tax introduced by Margaret Thatcher. The Poll tax was soon replaced by the hybid of rates and the poll tax – the council tax – under John major.
The principle remains the same however. Since the abolition of domestic rates and the collection of a nationally determined business rate levy by central government, local authorities have been subject to a high degree of centralisation (much more so than other developed countries) and lack the ability to raise the funding required to meet their core social care services for both adults and children.
There are circa 418 local authorities in the UK. Each has more than sufficient economic resources available within the local community to provide these core social care services if they are not obstructed from doing so by the central government.
There is no need for redistribution of local business rates. Progressivity in the tax system can be dealt with entirely via graduated rates of income tax, tax allowances and benefits and where appropriate precepting of part of land value tax in high value areas.
e.g. by Mayoral or regional authorities. The centralised collection of local authority rates simply serves to concentrate power at Westminster and undermines the ability of local councils to serve their local community.
Where local tax raising powers have been devolved e.g. Scotland, free peronal and nursing care is available for everyone over 65.
Peter Martin – Re: ” …deficit-spending must add to the economy by more than the interest cost ”
That’s not questionable at all. When deficit spending doesn’t add more than the interest cost the country becomes poorer because of that spending.
At present, with negative real interest rates that’s a pretty low hurdle – hence in part the traditional Keynesian emphasis on building infrastructure as a response to a depression. High cost/long life infrastructure projects benefit particularly strongly from low interest rates. So, in principle it’s a win-win – more employment plus new infrastructure that wouldn’t normally have been justified.
(A caveat: with much more international trade than in the 1930s and an economy devastated by years of mismanagement, much of any traditional infrastructure spending is likely to finish up in Germany, China etc. So, we should prioritise infrastructure equivalents not prone to leakage. I am not convinced that this point is adequately understood as yet.)
In better times interest rates are higher. Government could arbitrarily set itself an arbitrarily low interest rate but doing so would crowd out private investment – not in financial terms of course but via real-world capacity constraints. In that scenario interest would have a ‘shadow price’ that would create opportunity costs for the real economy.
For many years the Conservatives have specialised in making the country poorer (while making their friends richer) by playing fast and loose with the basic investment rule I set out earlier by creating artificially high interest rates via PFI and the like on entirely specious grounds.
I am astonished that, although neoliberalism has zilch intellectual coherence or integrity and has no practical benefit for 99% of us, the Lib Dem establishment, when given the chance, signed up to support it and even now remain incapable of effective opposition despite what the military call a ‘target-rich environment’.
The care services crisis David Raw points to is just one of many places where Tory policies combine with dismal opposition to create real harms.
@ Joe Bourke “Domestic or parish rates were introduced as part of the Elizabethan Poor Law Act of 1601..” Fascinating stuff, Joe.
Meanwhile there are thousands of 97 year old Mrs. Smiths waiting for their 15 minute carers to change their incontinence pads. A green paper isn’t quite up to that job I’m afraid, and the old ladies (and gents) are worried sick they might lose this service if Allied goes bust.
You also say, “There are circa 418 local authorities in the UK. Each has more than sufficient economic resources available within the local community to provide these core social care services”.
Really ? I have to ask, what world are you living in, Joe ? Have you ever served as an elected member or been a Convenor of Social work ? I certainly have and you couldn’t be more wrong.
Last week, Councillor Richard Watts, Chair of the Local Government Association’s resources board, said: “Losing a further £1.3bn of central government funding next year is going to tip many councils over the edge. Many local authorities will reach the point where they only have the funds to provide statutory responsibilities and it will be our local communities and economies who will suffer the consequences.”
Even the most optimistic flag flying Lib Dem must concede it’s a tad unlikely a newly elected majority Lib Government will be able to alleviate the present crisis by passing Land Tax legislation – which even Lloyd George struggled with. It’s an immediate pressing crisis and the Mrs. Smith’s can’t wait for that eventuality either.
Gordon,
“by creating artificially high interest rates via PFI and the like on entirely specious grounds.”
While PFI started with John Major, their use was very limited up to 1997. It was Gordon Brown (not the Conservatives) who massively ramped up the use of these off-balance sheet financial instruments to the extent that their use became widespread under New Labour. It is the current conservative Chancellor, Philip Hammond, who has just announced that their use will be brought to an end.
The care crisis did not start with the current Conservative government. The coalition government launched the Dilnot commission on funding care and support shortly after assuming office in 2010 as the sector was already by that time experiencing serious problems built up over many years.
I would agree with your caveat above that much of any traditional infrastructure spending is likely to finish up in Germany, China etc. So, we should prioritise infrastructure equivalents not prone to leakage.
David,
it doesn’t matter which local authority it is – whether it is deprived areas like Tower Hamlets in London or Middlesbrough in the Northeast – they each have the people and the resources to care for their own communities.
The problem as always is relying on central government funding that can be arbitrarily cut rather than local authorities having the ability to raise the taxes needed for local services within the community itself.
Care for the elderly requires two principal resources – Care workers to deliver domiciallary care and construction of nursing and care homes for residential care.
Every local authority has the capacity to employ care workers from within the local community. This is what will have to be done in any event of private sector providers like Allied no longer being in a position to deliver the services needed. Similarly, the lack of council-run nursing and care homes is largely down to the cost of land. Councils have access to funds via the Public Works Loan Board and can use compulsory purchase powers where necessary to acquire land.
I would like to see Local authorities given the powers to develop local solutions for local problems. Leave the politicking to the big boys in Westminster and let local councils get on with raising sufficient taxes locally for which they will be accountable to the local electorate, hiring adequate staff and taking a holistic approach to adult care including building adequate levels of public housing and care facilities.
@ Gordon,
The reason I would say it was questionable is that there is an implicit assumption in your argument that the Government doesn’t control interest rates and that they are in the same position as, say, the owner of a business. Naturally, a business owner has to show that the rate of return on any borrowed capital is greater than the interest paid on borrowing the capital. But the Government is neither a business nor a household.
Unlike a business or a household, the Government can set its own interest rates. It is possible that it could choose to set real interest rates (ie after inflation is factored in) at a relatively high level. This, though, would be very unusual. As we all know, when interest rates were higher we also had higher inflation. So real interest rates were still negative. Usually. This is a normal state of affairs.
But not always. This, though, would be entirely the Government’s choice. The last time I remember this occurring was in the early years of the Thatcher govt. Whether the Tories should have done this is debatable. The justification was to squeeze inflation out of the system. But rightly or wrongly it was entirely their call. As a currency issuer it didn’t actually cost the Govt anything.