Councils in danger as the Chancellor prepares to tackle economic black hole

Authorities from the Local Government Association have warned the future financial sustainability of councils and local services hangs on a ‘cliff-edge’ ahead of the Chancellor’s autumn statement.

A report by the Resolution Foundation (RF) think thank has outlined potential solutions to a huge fiscal shortfall available to Chancellor Jeremy Hunt as his autumn statement looms. The speech, which will outline government spending and cuts for the coming months, is set to be delivered on 17th November.

The independent organisation is urging Prime Minister Rishi Sunak to ensure councils have necessary funding to protect local services as public spending is estimated to be reined in while taxes could rise. 

Published yesterday, RF highlighted four options for the government to tackle a £40bn financial hole in the economy, with a major focus on an ‘anti-growth’ approach and providing more austerity.

James Smith, Research Director at the Resolution Foundation said: ‘The government has a little over two weeks to finalise its plans to repair its economic credibility and the sustainability of the public finances.

‘While the recent focus has been on conditions improving post-Trussonomics, the central picture remains one of weaker growth, higher borrowing costs and expensive tax cuts that have left a fiscal hole of at least £40bn to fill.

‘This reality means that the Autumn Statement is likely to involve tax rises, not just spending cuts.’

The think tank has argued the government could cut investment in an attempt to bring the UK’s interest rates down but warns this could damage growth as cuts would affect transport, science and regional economic development.  

As well as cutting investments damaging growth, the option is limited due to the ‘current balance rule’ which means only around £10bn of these cuts can contribute to meeting the government’s target.

With regards to more austerity policies, RF suggested the government would have to impose a ‘real-terms’ freeze in public service spending, which could cut unprotected departments by around 9% due to inflation hitting its highest level for 40 years, meaning some services will see budgets fall by around £22bn by 2024-25.

Responding to the report, Cllr James Jamieson, Chairman of the Local Government Association, said: ‘The future financial sustainability of councils and local services is on a cliff-edge.

‘In the past decade, councils have done more than their fair share of the heavy lifting when it came to putting public finances on a more sustainable footing, having faced a £15bn real terms reduction to core government funding between 2010 and 2020,’ he continued. ‘Without certainty of adequate funding for next year and beyond, and given the funding gaps they face, councils will have no choice but to implement significant cuts to services including to those for the most vulnerable in our societies.’

Photo by Alexander Grey