Spending Review to hit local councils hard

Chancellor George Osborne delivers the Spending Review Pic: Parliament TV

Chancellor George Osborne delivers the Spending Review. Pic: Parliament TV

Councils will face another tough five years in the wake of plans announced by George Osbourne during the Spending Review on Wednesday, local politicians have warned.

They say the introduction of Universal Credit in 2017 will bring financial challenges for many despite the unexpected U-turn by the chancellor on tax credits. Housing benefit, income support, incapacity benefit and dozens of other payments will be swept away and replaced with one welfare benefit.

Meg Hillier, MP for Hackney, said: “The tax credits climb-down will be no help as Universal Credit kicks in. Working families are still set to lose an average of £1,200 in 2020, rising to £1,300 for those with children and up to £3,000 for some families. Even childcare support will not be available to Hackney’s many part-time workers.”

The extended free childcare entitlement, which has now been doubled from 15 hours a week to 30, will only be available to parents who work a minimum of 16 hours a week each.

Another big announcement was the decision to scrap central government grants to town halls by 2020. The chancellor said: “Fixing the current broken system of financing local government will strengthen incentives to boost growth, help attract business and create jobs.”

However, for those councils that rely more heavily on the grant, its termination will mean a significant drop in available funds.

Councillor Kevin Bonavia, the cabinet member for resources at Lewisham council, said: “Inner city councils like Lewisham have more social needs and this extra cost has meant a higher than average central government grant, so its abolition will hurt Lewisham more than most areas.”

Rushanara Ali, MP for Bethnal Green and Bow, echoed Bonavia’s concerns. She said: “George Osborne’s Autumn Statement was one of smoke and mirrors. It changes nothing.”

“Cuts to public services will leave the residents of Bethnal Green and Bow worse off . The council will struggle to provide local residents with the vital services they need and rely on”, she continued.

The Government mitigated the loss of the central government grant by giving local councils the power to raise council tax by two per cent – with any revenues ring-fenced for social care.

Shadow chancellor John McDonnell dismissed this announcement, however, saying that the revenue “is not nearly enough to fill the funding gap the government has created”.

In practical terms this would mean that if Lewisham council were to increase council tax, it would raise only about one tenth of what its social care budget was last year.

The Spending Review also re-iterated the Government’s plans to allow local councils to retain 100 per cent of their business rates by the end of Parliament in 2020.

This is good news for boroughs with a prominent business sector, such as Tower Hamlets, but could leave other councils facing a shortfall.

Bonavia said: “Lewisham is likely to lose up to £30m as this is the amount of subsidy Lewisham gets from redistribution of business rates across the country, because we are far more residential with fewer businesses than other areas.”

Other measures that are likely to have an effect on local residents include changes to the housing budget.

Osborne announced that this will be doubled to £2bn a year, and promised to deliver “400,000 affordable homes by the end of the decade”.

However, the rate of housing benefit in the social sector will now be capped at the same rate as the private rented sector.

This was part of a £12bn cut to the welfare budget, which Hillier also condemned: “Talking about welfare cuts sounds appealing, but it actually traps people who have the ambition to break out of benefits and into work.”

Follow Annie Gouk on Twitter @AnnieGouk

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