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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 affect each UK nation and 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 North East of England:

·        The total funding gap across local government in the North East is £1.2 billion in 2019/20

·        Under current plans, this gap will grow to a £1.3 billion funding gap in 2024/25

·        The shortfall per capita for residents in the North East is £459 in 2019/20

·        Under current plans, this shortfall will grow to £472 in 2024/25.

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

Central government grants to local authorities in the North East have already been cut by 79% since 2010. And further major cuts are planned by Boris Johnson’s government in the years to 2024/25.

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

Ministers say that to help plug the gap, they are allowing councils in the North East to retain more 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.

Cuts in central government funding to local government in the North East since 2010 have resulted in significant cuts to services, many of which have an impact on the day to day lives of residents.

The region has seen a significant number of libraries either closed or operating on reduced hours, a reduction in school crossing patrols, the devastating closure of a substantial number of Sure Start centres and a decrease in non-statutory services, such as pest control.

In addition to these service cuts, thousands of local authority jobs have been lost across the North East. This has not only impacted upon those who have found themselves without a job, but also resulted in those who remain in post being placed under increasing pressure to deliver services.

Under current government policy, austerity will continue until at least 2025. This would make it impossible for most councils to avoid further service cuts, says the TUC.

Local government services in the North East 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 a recession, financial crisis or loss of international trade can result in reductions in business activity, and therefore less income from business rates.

TUC Regional Secretary Beth Farhat said:

“Working people slogged hard to rescue Britain from the financial crisis. It’s time our local services in the North East got a fair share.

“But instead the Prime Minister is planning to turn the screw on our local services for another five years. And he’s promising tax cuts for the rich.

“We can’t let Boris Johnson rinse our community to give his rich mates a tax break. Too much has been cut from us already.

“The North East 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 to bring them back to life. And we need to reopen youth services and children’s centres so that all our kids get a good start in life.”

Editors note

- Local government funding gaps for English regions 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

North East

1.2

1.3

459

472

North West

2.8

4.3

379

581

Yorks & Humber

2.3

3.0

418

537

East Midlands

1.8

2.2

380

448

West Midlands

2.0

3.0

345

495

East England

3.0

3.6

485

548

London

3.1

4.7

338

496

South East

1.3

3.1

138

326

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

North East

79%

North West

79%

Yorks & Humber

81%

East Midlands

79%

West Midlands

78%

East England

83%

London

81%

South East

69%

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.

- 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.

- About the New Economics Foundation: The New Economics Foundation is a charitable think tank. We are wholly independent of political parties and committed to being transparent about how we are funded. For more information, visit: www.neweconomics.org

- About the TUC: The Trades Union Congress (TUC) exists to make the working world a better place for everyone. We bring together more than 5.5 million working people who make up our 48 member unions. We support unions to grow and thrive, and we stand up for everyone who works for a living.

Contacts:

TUC Northern Region
0191 227 5550

TUC national press office
media@tuc.org.uk
020 7467 1248