Prime Minister must not ‘rinse our communities to give his rich mates a tax break’, says TUC

 New analysis published today (Wednesday) by the TUC and commissioned from the New Economics Foundation (NEF) shows how the current government’s plans for local government funding will impact the region.

The research compares current (2019/20) and future (2024/25) local government funding against a baseline of service provision in 2010, before austerity decimated local public services.

Key findings for the South West show:

  • The total funding gap across local government in the South West is £ 1.9 billion in 2019/20
  • Under current plans, this funding gap will grow to £2.7 billion by 2025
  • The shortfall in funding per South West resident is £332 in 2019/20
  • Under current plans, this shortfall will increase to £457 in 2024/25.

(All figures are annual and relative to 2010 levels of service provision)

 Central government grants to South West local authorities have already plummeted by 75% since 2010. And further major cuts are planned by Boris Johnson’s government for the next five years.

High earners luck out against local service cuts

The Prime Minister has also pledged a tax cut of at least £8 billion for the UK’s high earners, which would boost their incomes by 8%. And he plans to cut taxes for corporations by £6 billion next year.

In 2010 central government grants accounted for around half of local authority budgets. But by 2025, only small ring-fenced grants will remain, worth just 9% of local authority budgets.

To help plug the gap, ministers are allowing councils in the South West to retain more of the business rates they collect. However, this additional income falls far short of what would be needed to fully substitute for the funds that have been cut.

Under this current government’s policy, austerity will continue until at least 2025. According to the TUC, this would make it impossible for most councils to avoid making further cuts to already stretched local services.

Local government services will also be left more exposed to economic shocks because of the government’s plans to make them more reliant on income from business rates. Shocks like another recession, financial crisis or loss of international trade would result in reductions in business activity, which means less income from business rates.

Nigel Costley, TUC Regional Secretary for the South West, said:

“Working people slogged hard to rescue Britain from the financial crisis. We’ve also seen local services decimated, libraries and community centres closed, and social care provision reach breaking point. So it’s high time local government got a fair share of the gains made.”

“Instead, the Prime Minister has promised more tax cuts for the rich. And at the same time, he intends to turn the screw on our local services for another five long years.”

“We can’t let Boris Johnson rinse our communities dry just so he can give his rich mates a tax break. Too much has been cut from us already.”

“The South West needs proper funding for social care so that our older and disabled people are not left lonely and isolated.”

“We need to invest in our town centres and high streets to bring them back to life.”

“And we need to reopen youth services and children’s centres so that all our kids get a proper start in life.”

– Local government funding gap figures for the South West against a baseline of service provision in 2009/10.

English region

Billion £s

£s

Overall gap 2019/20

Overall gap 2024/25

Gap per capita 19/20

Gap per capita 2024/25

South West

1.9

2.7

332

457

– Cuts to central government grants to local authorities from 2009/10 to 2019/20

English region

% cut relative to 2009/10

South West

75%

– Local government funding reforms: The central government grant is being partially replaced by allowing councils to retain business rate revenue. However, councils will be left with substantially less funding overall compared to the resources they had before the cuts began in 2010. The reforms will favour councils where future business growth is strongest, as their business rate revenue will grow. But areas that experience economic decline will suffer significant losses.

– Funding gap: While local government income between now and 2024/25 will remain essentially flat in real terms, the funding gap will continue to grow. This is because demand on local government services will increase due to population growth and people living further into old age.

As a result of this demand growth, most local authorities are likely to experience a widening funding gap.

Poorer areas are also at greater risk of larger shortfalls because the new funding system is less responsive than the previous central government grants to higher levels of demand that are typical in communities with greatest economic deprivation.

– TUC view on local government funding reform:

The TUC is concerned that local government funding reforms are being used to disguise ongoing austerity.

  • The funding scheme planned for local authorities is insufficient and will result in major funding gaps and greater inequalities between communities.
  • A new approach is needed that closes funding gaps, addresses inequalities in distribution, and is responsive to differing levels of need from demographic pressures.
  • Any new approach should meet the principles of good tax design:
    • Improve the long-term financial sustainability of local government
    • Increase progressivity of locally administered taxation
    • Increase accountability and transparency
    • Improve on economic efficiency, for example in the housing market
    • Be politically and technically feasible
  • If local authority funding includes incentives to encourage councils to promote business growth, it must not result in punitive levels of funding for communities affected by economic deprivation. Current rules on business rate retention should be amended so that the portion of revenue growth councils can keep is proportionate to need.

– High earner tax cut: Boris Johnson has pledged to raise the personal tax allowance for high earners from £50,000 to £80,000. Analysis by the Institute for Fiscal Studies estimates that this will cost £8 billion pounds. Higher earners are also expected to make significant gains from his proposals to change the threshold for National Insurance Contributions. The IFS analysis is here: https://www.ifs.org.uk/publications/14388

– Corporation tax cut: Boris Johnson inherited and is continuing a policy from Theresa May’s government to cut corporation tax from 19% to 17% in April 2020. Analysis published by HMRC suggests that the change will cost the Exchequer around £6.2 billion annually by 2022/23. The analysis is here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/797042/190424_SS19_Direct_effects_of_illustrative_tax_changes_BULLETIN_FINAL.pdf