Local authority figures labelled as ‘fantasy’ in row over budgets

The familiar war of words between the Local Government Association and central government ahead of the annual council funding settlement has broken out again.

Last week, the LGA claimed in its  Beyond the Black Hole report that new government requirements and super-inflationary funding pressures on existing services had left a funding gap of £2.8bn for 2006-7.(1)

The gap includes more than £660m needed for adult social care and £450m for children’s services, including some education-related expenses such as school transport and catering. So far the government has promised only £600m to cover this shortfall.

The context is that councils are expected to spend £4bn on children’s services, excluding education, and £9.5bn on adult services in 2005-6.

The Office of the Deputy Prime Minister has described the LGA’s figures as “fantasy”, saying it has failed to explore efficiency savings.

But the LGA counter-claimed that councils were leading the way in public sector efficiencies, with £1.9bn – including £415m from adult and children’s services – expected to be shaved from budgets from 2004 to 2006, against a £1bn target.

Local authority claims
The LGA believes the shortfall in adult services is caused by increased demand for services (£197m) and upward pressures from the care market (£466m).

Another £43m is attributed to the increasing number of older people. The LGA cites government figures  saying the number of over-85s will rise by 5.6 per cent in 2005 and 5.2 per cent in 2006, with a quarter of this group likely to develop dementia.

The biggest demand pressure on councils is in learning difficulties – £107m – which derives from increased life expectancy for service users and the transfer of services from NHS to local authority provision.

This reflects last month’s Association of Directors of Social Services report which suggested that funding pressures in learning difficulties could increase by up to £800m a year over the next five years (news, 20 October).

Perhaps more controversially, the LGA says the unit costs of care are far outstripping inflation as a result of “market pressures, workforce changes and rising consumer expectations”. Outsourcing provision is also increasing pressures because, the LGA claims, costs are rising at a faster rate in the private sector.

It is a similar story in children’s services. Demand is increasing with increased life expectancy for severely disabled children and growing numbers of children in care.

LGA Spend graphic
The LGA also says councils’ inability to recruit enough foster carers is forcing them to use private agencies to do the job for them at greater costs, while the unit costs of residential care are continuing to increase, adding an estimated £115m.

It also points to a £150m shortage in meeting asylum costs, the result, the LGA claims, of the government’s failure to fully reimburse councils for supporting destitute asylum seekers and unaccompanied children.

Councils also face a shortfall of more than £130m in housing, it says, mainly as a result of insufficient funding to implement councils’ duty under the Homelessness Act 2002 to house vulnerable, homeless 16- to 17-year-olds.

Added to this is more than £40m for antisocial behaviour, which the LGA attributes to council spending on preventive and enforcement activities that make savings for other agencies but not for them.

Analysis difficulties
But there are problems with the LGA’s figures.

The £2.2bn funding gap it identifies presumes no increase in council tax. Although the government is threatening to cap authorities, as it has done over the past two years, this would only be for “excessive” rises – it still expects council tax to increase, probably by up to 5 per cent on average.

The LGA also fails to explain why council reserves rose by an estimated £1.1bn from 2003-4 to 2004-5.

There are also problems in the LGA’s estimates. Upward pressures on foster care range from £75m to £150m, but the LGA has used the upper figure in quantifying the overall gap in children’s services, something seized upon by the ODPM.

On the efficiency side, the Commission for Social Care Inspection defined many areas for improvement in children’s services in its recent report Making Every Child Matter.(2) Among its criticisms were that many councils had “not developed commissioning arrangements sufficiently to show that they are achieving value for money” and that most councils did not link their financial planning to their strategic commitments.

But, at least on the social care side, there is evidence that the LGA’s analysis is not wholly wrong.

One of the government’s key arguments is that local government funding will have grown by 33 per cent in real terms from 1997-8 to 2007-8.

But the Personal Social Services Research Unit, based at Kent University, estimated that the inflationary pressure on social services in 2003-4 was 5.3 per cent, against the government’s preferred measure of the retail price index, which was 2.8 per cent.

Many social care workers benefited from the 4.1 per cent rise in the minimum wage last month and the government has provisionally agreed a 5.9 per cent rise for October 2006, which is bound to put upward pressure on care contracts.

In Making Every Child Matter, the CSCI endorsed the LGA’s concerns on asylum, saying there was “uncertainty” over whether councils would be reimbursed by the National Asylum Support Service.

The King’s Fund has also made the case for increased funding for older people in its care services inquiry for London.(3) But Penny Banks, who co-authored the inquiry’s report, says there are difficulties in assessing how much money the social care system needs. She says: “From our care services inquiry, it did appear there were inadequate resources in the public system of care. What we could not do is put a figure on that. That is why we have Derek Wanless looking at it.”

Wanless’s review of older people’s services, due to report next March, promises to produce an evidence base for care costs that government and councils will have to consider, regardless of its political benefit to either.

Sir Michael Lyons, former Birmingham Council chief executive, is carrying out a key review into council finance and functions. This is due to report in time for the 2007 comprehensive spending review.

Lyons may call for an increase in the amount that councils can raise locally, currently 25 per cent of budgets are derived from local taxation, which will reduce councils’ dependency on government finance.

Chris Leslie, director of think-tank the New Local Government Network, says the review could “get to the bottom” of the problems behind the annual row.

Leslie, who was a minister until he lost his seat at the May election, says there is truth on both sides of the argument: “The government rightly says some of the solutions have to be efficiency and productivity changes in local government. But government should be helping local authorities with the costs of these policy burdens. There are cost pressures and you can trace them back to particular government policies.”

In each of the past two years, the government has made funding concessions to avoid high council tax increases. With important local elections next May across major cities and many unitary authority areas, Labour will not want to campaign on the back of big tax hikes.

Care services minister Liam Byrne is understood to be keen to hear the LGA’s case. In last month’s document on responses to the adult care green paper, he acknowledged concerns about pressure on resources.

Whatever the truth of the matter, it will be old-fashioned political compromise and arm-twisting that are likely to decide councils’ fate.

(1) Local Government Association, Beyond the Black Hole, November 2005
(2) Commission for Social Care Inspection, Making Every Child Matter, October 2005
(3) Penny Banks, Commissioning Care Services for Older People, King’s Fund, July 2005

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