Cheery as this blog tries to be, those seeking their ritual giggle (some at the style, some at the content), should stop reading now and switch to Oor Wullie. Get yer tin hat on—we’re in Sturm und Drang mode today. What triggered it was nothing more offensive than a KPMG beancounter presenting his fiscal audit of ELC to their Audit & Governance scrutiny committee. Although not a member of said committee, anorak that I am I sat in.
The report was competent and thorough but took a rather jaundiced view of ELC finances. We had rehearsed this argument at last week’s cabinet but to hear an outsider figuratively suck his teeth because all reserves were earmarked and capital spend for the last year had exceeded the previous by some 15% made me realise just how uncharted are the fiscal waters into which councils (and indeed the entire Scottish Government) are now sailing.
I’ll spare those readers not already chuckling at Fat Bob and Soapy Soutar the detail but ELC had tightened its fiscal belt as soon as the 2008 crunch hit, piled up some £28m in reserves and planned to spend them down to cover the 3-5 year downturn forecast when the UK budget was put on emergency life support. A chart went the rounds that showed a 5 -year series of year-on-year drops in public funding, followed by a further ten, during which it recovered to its original level.
The idea was that a ‘bridge’ could be built across the bottom of that sharp down/slow up chart by filling in the shortfall with reserves for a limited few years. That assumed there would be an ‘up’ starting soon, if not now. Unfortunately, every indicator from double-dip recession to unending Eurocrisis now points to more down before we see any up. This is bad news for anyone. But for councils, it heralds a disaster.
First of all, a 4% year-on-year drop in the Scottish budget was put off for a year but came into effect last year and will be repeated this year. Initially a third drop next year was going to be the extent of it—a 12% real drop in Scottish Government spending (good chart here), after which things would recover slowly to normal. That in itself was going to be drastic, equalling a loss of £3.840m in monies spent by the Scottish Government. Those monies are spent roughly 1/3rd each on:
- NHS, including hospitals, GPs, ambulances, dentists, pharmacy, etc (£10,435m)
- Local Government (schools, social work, roads, parks, sports, museums, cleansing, recycling, libraries, environment, planning, trading standards, housing)…to name just a few, totalling £10,300m
- Everything else, which includes tertiary education (£2,296m), finance & growth (£3,394m), justice (£1,963) rural affairs (£545m), with quangos like SEPA, Scottish Enterprise, Creative Scotland, VisitScotland, Scottish Water funded through the relevant department.
Given that our population is ageing and the elderly make the biggest demand on the NHS, the current government’s promise to protect the NHS budget is the least it can do. Which means than, instead of 12%, 18% in savings must come out of the budget for the other two areas. Let’s presume local government and the rest share that equally (optimistic, given that there will be hell to pay if either university or arts funding drops by 18%).
There is an additional factor that needs to be considered. When council budgets rose by 3-5% each year, as they did throughout the noughties, the effect of salary ‘creep’ could be ignored. This ‘creep’ is a natural increase as people gain seniority and promotion. Even if a complete pay freeze is in effect, employee salary ‘creep’ will add 1 – 1.5% to any budget and must be taken into account.
So, let’s examine council spending more closely. Easily the most visible of public services to most people, there are few people insensitive to council services, whether it is bin collection, street sweeping or their local football pitch. A typical mid-size council (Perth & Kinross) annual revenue budget allocation is shown in the pie chart below:
By far the largest chunk goes on Education and Children (48%), with the next largest on Housing and Community Care (19%). The former is almost all expended on schools and the bulk of the latter is spent on Adult Social Care. This is because all these budget are net. This means that they are the additional money needed to pay for services that do not pay for themselves. Unusually (because it charges rents), Housing is one of the few council departments that either breaks even or even contributes some money to the general budget.
As far as the general public is concerned, both Education and Adult Social Care fall into the same taboo category for cuts as the NHS does. If the same ‘ring-fencing’ to protect their budgets were applied as we just did with the NHS above, instead of 12% becoming 18% cuts for the whole council, protecting Education and ASC would mean a 54% cut on everything left. Add in salary creep and you’re looking at least at 57% savings
This is clearly impossible without wholesale closure & sale of libraries, museums, community centres, sports centres, parks, etc and slashing planning, cleansing, environmental protection, roads and even transport of pupils and ASC clients to unacceptably low levels. The room for maneuver is worse than we thought.
Back in 2008, East Lothian Council instigated a 2% per annum efficiency saving requirement from each department over the next three years. This was achieved, largely by natural wastage of staff (down by over 200 out of 4,500 FTEs), plus major items like an overhaul of how ASC was provided, through charging for special uplifts, right down to skipping winter planting of flower beds or summer hanging baskets (unless the town fund-raised to supply them).
The point is that, after three years of effort, most of anything that could be described as ‘fat’ has already been cut from the operation. Where councils (including ELC) have made very little progress is in ‘shared services’ where they operate joint departments with other councils. Nobody argues there needs to be 32 directors of education or 32 separate roads departments, each with their own yellow “Tonka-toy” fleets of gravel lorries and tar machines.
But, despite the fact that all 32 councils could get their payroll from one place and despite councils like ELC budgeting £5m of reserves for a ‘change fund’ to finance such transitions, almost nothing has happened. After three years, an ‘ELBEF’ consortium of the six Edinburgh, Lothian, Fife and Borders councils has produced exactly nothing.
The reason is that senior management in virtually all councils have been permitted to run their various departments as they saw fit. And after a decade of annual increments to both their budgets and their salaries, they presided over somewhat bloated organisations that nobody had examined in detail—let alone taken a chain saw to—in living memory.
Complicit in all this is Audit Scotland, who churn out forest-fuls of high-production-value reports that nibble at the edges. It’s an echo of the emperor’s clothes where it’s in no-one’s interest to blow the gaffe and, as no-one steps much out of line, few examples of how to innovate.
In February of 2013, there will be a variety of bun fights down at the local Town House; the new administrations will blame the old administrations, suck their teeth and balk at anything too radical, using reserves to cover shortfalls and selling property to cover that where necessary.
But during 2013, meetings at CoSLA (the council’s own common organisation) will get much more ill-tempered, as will their relationship with the Scottish Government. John Swinney will continue to be diplomatic, reasonable and generous where he can. But as his hands are also tied, there will be a joint throwing of toys out the council pram as the much-heralded ‘Concordat’ of 2007 gets torn up, along with the related commitment to a council tax freeze.
Even then, because education and ASC will need to take some share of the cuts to come, much ill-tempered trading of blame will pepper the run-up to the February 2014 budget setting—because, despite raising council tax as much as 10% and making what cost savings and natural staff wastages are still there to be made, that’s when the cumulative shrinking will really start to bite and wholesale jotters will be collected across those services deemed not to be ‘essential’.
As well as real cuts in jobs and salaries in Education and ASC and unpopular moves like fortnightly bin collection or doubled fees, look for community facilities that councils supply from pitches to libraries suffering not just limited hours but wholesale closure and sale, with staff losses in what were once ‘safe’ public service jobs of 10% or more.
It’s that serious.