On Sunday, May 12, 2019, I will be presenting a workshop in London on – Local Government Funding: Challenging the Status Quo. Basically, I will be speaking about the way in which flawed understandings of the capacities of currency-issuing governments, combined with a vicious, ideological attack on working people from a government fully invested in neoliberal transfers to the elites, have ravaged the capacity of local government in the UK to deliver essential public services. See the Events Page for more details. It is a public event and I hope people support it. To prepare for that workshop, I have been digging deeply into the data to fully acquaint myself with how the ideological austerity push has been distributed across central and local government service delivery. It is no easy task. The data is a ‘dog’s breakfast’ and coming to summary positions is quite time consuming. There are also nuances in the way local government is structured (particularly since the Thatcher years where devolution and cost-shifting was accelerated), which mean that care must be taken in making sensible comparisons. Here are some of the things I found. I have learned a lot in this process, which is a good thing. This is Part 1 of a two-part series.
Structure of Local Government in the UK
I live in a nation with three levels of government (federal, state and local) where the federal and six states and two territories states are tied together by the federation and the local governments (560 councils at last count) are creatures of Acts of Parliament passed in the state legislatures.
There is a major vertical imbalance in our system where the currency-issuing Federal government dominates in terms of revenue collection and the currency-using states have responsibilities for the major expenditure functions (hospitals, education, housing, police and fire services, etc).
The local councils are usually responsible for urban roads, planning controls and regulations, garbage disposal and that sort of thing.
While the local councils collects land value-based rates and levies fees for its services, they also receive a major share of their income from grants from higher levels of government.
This Parliamentary Education Service document – Closer Look – Governing Australia: three levels of law-making – is very informative.
Now, coming from that background and trying to come to terms with the UK system of government is no easy task.
First, the UK is not a federation. It is a unitary government system.
Second, local authorities in the UK are created by Acts of Parliament as statutory bodies but “they are not accountable to Parliament” (Source).
Third, for Scotland, Wales and Northern Ireland, local government is a “devolved responsibility”.
Fourth, local governments “deliver services in line with national objectives, and in a manner that meets the diverse requirements of different neighbourhoods and communities. Services are delivered directly through their employees and indirectly through other bodies. Outside agencies also play a role in service delivery.”
So, if was to try to be crude by way of comparison, they have the sort of responsibilities that Australia’s state and local governments have put together. Mostly that is accurate.
Fifth, local government in England are not all structured alike – there are, in fact, six forms (Metro Districts, London Boroughs, Unitary Authorities, Shire Counties, Shire Districts, and Single Purpose Authorities). The Shire Counties and Districts dominate the so-called “shire areas”, which are outside the large metro regions and London.
That complexity also makes it hard to track down and build a sensible summary database.
Sixth, the way fire and police services are provided is also an added complexity, which I won’t go into but am happy to know about.
Seventh, then we hit the “Parishes and Charter Trustees”, which are an additional tier of local government (there are in excess of 10,000 of these localised taxing bodies).
The way local governments spend is two-fold:
(a) they raise their own revenue (council taxes, etc).
(b) they receive central government grants.
Capital spending (infrastructure) is “principally financed through central government grants, borrowing and capital receipts”.
The complexity is that not all local authorities can collect council taxes. Some 94 (out of 444 local bodies) have only “precepting” status, which means they have to get money from a “billing authority” (a council that can collect taxes) or elsewhere.
The “Police and fire and rescue authorities are also precepting authorities.”
Central government spending trends since 2010
The current Tory government was elected in May 2010 on a platform to cut the fiscal deficit.
The most recent British Treasury data – Statistical Bulletin: Public Spending Statistics February 2019 – (published February 28, 2019) – provides details of the ‘outurns’ (actual spending) of the central government by department.
This data is the principal framework the British government uses to “to plan and control expenditure”.
It includes “departments’ own spending as well as support to local government and public corporations”.
The first graph shows the evolution of Total managed expenditure (TME) for the central government from 1997-98 to 2017-18 (at 2017-18 prices).
From 2010-11 to 2017-18, real public expenditure has declined by 1.1 per cent.
At the same time, the overall British population has increased by around 4.8 per cent.
Which means in per capita terms, real TME has declined by 5.7 per cent, which amounts to around £728 per person as at 2017-18.
So the British government’s austerity push has clearly reduced the material well-being of the British people.
Overall managed public expenditure declined from 44.9 per cent of GDP in 2009-10 to 38.47 per cent of GDP in 2017-18. However, the average over the decade before the GFC was 36.5 per cent so the increasing proportion was mainly due to the large dip in GDP as a result of the crisis.
That is clear enough.
But with the service delivery functions of the British government there have been substantial shifts in the overall spending patterns, which provide a gloomier picture of the austerity impacts.
The following graph (Chart 1 in the publication) shows the real spending by department since 1997-98 (to 2017-18) on a comparable basis (given the changing departmental responsibilities).
The trends are clear enough. After some real growth in spending on social protection, there has been a 2.9 per cent contraction in the two years up to 2017-18.
Real spending on health has increased over the period of Tory rule but that growth has virtually disappeared in recent years.
Worrying is the real decline in spending on education (largely due to cuts in grants to local authorities) – it has been cut by over 14 per cent in real terms. Education is the major avenue for future productivity growth and social inclusion. It might be easy to trash in the short-run, but the long-run consequences are devastating (for both citizens and the overall national performance). Hacking into spending on education is a classic myopia that neoliberals fall into.
Real spending on Economic affairs has risen the most over the Tory period (20.9 per cent). Economic affairs includes enterprise and economic development (1.3 per cent of total spending); science and technology (0.7 per cent of total), employment policies (0.4 per cent of total), agriculture, fisheries and forestry (0.7 per cent of total), and transport (4.3 per cent of total).
Most of that growth has been in handouts to business and transport (mostly Network Rail) with employment policies taking a 44.6 per cent cut over the period from 2010-11 to 2017-18. That clearly reflects the priorities of the Tory government.
Both General public services and Defence spending contracted in real terms over the period examined. General public services includes public and common services (1.7 per cent of total spending), international services (1.5 per cent of total), and public sector debt interest (6.1 per cent of total).
The next graph shows the percentage shifts in real expenditure in these service areas from 2009-10 to 2017-18.
Driving the austerity agenda
Britain’s governmental structure is dominated by the central government. The decentralisation of authority to local governments has always been highly conditional.
In their 2018 paper – The depths of the cuts: the uneven geography of local government austerity – published in the Cambridge Journal of Regions, Economy and Society (Vol 11, pp.541-563), Mia Gray and Anna Barford trace the way the shifting ‘public finance’ patterns in Britain have impacted on the regions.
They emphasise that:
Public finance is politics hidden in accounting columns.
They seek “to understand austerity and its role in reshaping the relationship between central and local government.”
The paper uncritically accepts the 2010 narrative from the Tories that there was an “unambiguous problem of sovereign debt” in Britain and “that invoked inevitability, the probable consequences of spooking financial markets and the prudence of fiscal responsibility”, which I found problematic in the extreme.
But their descriptive spatial analysis of the way this austerity has impacted on the capacity of central and local government to provide public service is interesting.
But their point that the UK has “one of the most centralised local government funding systems in the OECD, with diminished fiscal control and autonomy for local government … Despite its embrace of neoliberal policies, Thatcherism retained the highly centralised apparatus of the UK state” which maintained “tight control over local government”.
While devolution gave Scotland, Wales and Northern Ireland more autonomy in how they fund their local governments, the local authorities in England were held on a tight leash by the central government and have borne the worst of the austerity.
I would not, however, want to overstate the ‘freedom’ that devolution has given Scotland, Wales and Northern Ireland.
Austerity is drilled down from the centre to the local levels.
The SERC Discussion Paper 62 (October 2010) by Andy Pike and colleagues – In Search of the ‘Economic Dividend’ of Devolution: Spatial Disparities, Spatial Economic Policy and Decentralisation in the UK – traces the results (the so-called ‘economic dividend’) of the devolution of power in the neoliberal era.
They note that (p.5):
… the political-economic tide turned away from Keynesianism and its redistributive spatial policy toward neo-liberalism … during the 1970s. Characterised by de-regulation, liberalisation and the attempted ‘rolling-back’ of the state, the UK variant led by Margaret Thatcher’s Conservative administrations from 1979 emphasised individual responsibility, free markets and enterprise which underpinned the critique and dismantling of regional policy during the 1980s. The turn toward neo-classical economics and the free market interpreted Keynesianism and regional policy as distortions and impediments to rational and efficient decision-making amongst economic actors.
Please note that this paper was subsequently published in the Journal – Environment and Planning C: Government and Policy (Vol 30, pages 10–28) in 2012. I am using the 2010 pre-published version because it is freely available.
But it does cut both ways.
The Gray-Barner paper notes that in the face of cuts:
… local government associations in England, Scotland and Wales have consistently argued that capping local budgets and funding is ‘an affront to local democracy’
They have pushed for more autonomy to gain greater shares of business taxes and the like.
Many local governments have thus embraced the ‘competitive’ paradigm and engage in old-fashioned ‘smokestack chasing’ – competing for private investment via the offer of cheaper land, taxes.
The history of ‘smokestack chasing’ and the literature that has studied the phenomenon tells us that it not only undermines the welfare of other regions in the nation but also compromise the position of the region doing the ‘chasing’.
The Gray-Barner paper uses the term “race to the bottom” to describe the phenomenon.
It also tends to create further divergences between regions because more prosperous regions are typically more attractive to capital.
The conclusion is that this sort of neoliberal devolution, which has set local authorities up against themselves:
… leads to increased competition, aggressive and injurious local rivalries … and a widening of regional economic disparities.
Further, the dependency of local regions on central government grants varies considerably across the UK. The more prosperous local areas rely less on central support, while other areas depend on the central government for upwards of 80 per cent of their income, given their weaker tax bases.
Austerity in this context then creates massive disparities.
The March 2015 Report from Ron Martin, Andy Pike, Pete Tyler and Ben Gardiner – Spatially Rebalancing the UK Economy: The Need for a New Policy Model – published by the Regional Studies Association, concluded that:
1. “Regional disparities in economic performance in the UK are now greater than those found in any other European country”.
2. The “spatial economic imbalance in the UK has to do with the progressive concentration of economic, political and financial power in London and its environs.”
3. “UK’s northern areas have the underlying potential to ‘turn around’ from the decline of their industrial base but this will require a step change in the level and control of the resources that are made available to them”. As we will see in Part 2, austerity has deliberately deprived these regions of resources.
The reality is that the austerity push by the Tories has been a rather tawdry example of neoliberal depoliticisation – pushing the hard decisions of public sector cutbacks down to the local government level – to avoid having to take responsibility for the human impacts that the austerity has brought.
The Gray-Berner paper concludes that:
These targeted cuts to local government are intended to move Britain towards a ‘small state’ by reducing local governments’ ability to provide services that make up the broad array of services under Britain’s welfare state.
And as Wolfgang Streeck noted in his 2014 paper – The Politics of Public Debt: Neoliberalism, Capitalist Development, and the Restructuring of the State – published in the German Economic Review (Vol 15, pp.143–165 – you can download the Working Paper) “the consolidation state” (the hollowing out process using austerity) has been largely accomplished by “cutting expenditures by retrenching state activities in line with neoliberal standard recipes”.
Tax increases are eschewed.
In squeezing spending, austerity-minded governments have to choose between “cuts in either mandatory or discretionary public spending; the former being by definition more difficult to make than the latter, at least in the short term”.
As a result, they tend to cut discretionary spending which:
… includes public investment in the physical infrastructure and social investment in education, science and technology, labor market policy, family services, and the like.
The UK government’s attack on local authorities is consistent with this pattern.
I have written about this decentralised austerity before in these blog posts (among others):
1. The urban impact of the failure of austerity (January 26, 2016).
2. Brainbelts – only a part of a progressive future (July 25, 2016).
3. The blight of the visitor economy (February 6, 2018).
Part of the story is that the Third Way movement pioneered new ways to misrepresent the retrenchment of the public sector. New regionalism was one such tactic and claimed that that the nation state was dead and, instead, there were competitive regions whose fate depended on the entrepreneurial skills contained within.
They would prosper if they exported the products of these skills.
New Regionalism proposed a series of ‘solutions’ or separate policy agendas that built on individualistic explanations for unemployment and accepted the litany of myths used to justify the damaging macroeconomic policy stances of the type witnessed in Britain under the Tories.
It claim, consistent with the growing neoliberal emphasis on ‘individualism’ that policy, in general, was to be ‘light touch’ but focused on individuals (people) rather than places. This was classic ‘market incentives’ type reasoning.
It was motivated by the assertion that a person’s location was immaterial and that their efforts, ingenuity etc were the driving forces in determining improved economic outcomes.
See the blog post cited above (1) for more analysis.
It was a dud concept.
Most these claims were based on induction of regional ‘successes’ without regard for the specific cultural or institutional contexts, and lack any coherent unifying theoretical underpinning.
It is highly disputable whether the empirical examples advanced to justify the claims made by New Regionalist proponents actually represent valid evidence at all.
In all cases of regional success, a supportive macroeconomic policy framework – read deficit spending from the currency-issuing government – is also observed.
The future of regions thus is still tied in lock-step with the way in which the nation state conducts fiscal policy.
It appears obvious that, in words of Gray-Berner that:
… austerity at the local level is part of a longer-term political project to re-shape and redefine the welfare state at a national and local level; even if this is marked by complexity, fragmentation and incoherence.
And that is where the struggle has to be.
Focusing on crafty ways to get extra revenue – through the offer of ridiculous incentives to businesses to locate or whatever – is just accepting the process and dying a slow death.
It reminds me of the higher education cuts in Australia that began in the early 1990s. The Vice-Chancellors of the universities demonstrated appalling leadership as the cuts mounted and individual universities were set up in competition against each other – fighting for students, research grants etc.
The VCs individualised the problem and set about increasing ‘net revenue’ through a raft of dodgy courses, internal cuts, which eroded quality, and more.
If they had have, instead, combined and responded to the cuts by cutting student intake, thus denying the middle class and upwards kids a chance at university entry, they would have created a political problem for the federal government.
That would have changed the dynamic entirely.
So in Britain, that is the challenge.
In Part 2, we will examine how this austerity agenda initiated by the harsh central government cutbacks to the local authorities is impacting locally.
The numbers are devastating. But the impact on the human condition is where the focus should be and the class struggle emanate from.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.