Local councils warn of critical funding crisis as £18bn grant is scrapped

Town halls are facing a £4.1bn a year black hole in their budgets that not even the closure of every children’s centre, library, museum and park could fill, council leaders have warned.

George Osborne’s decision to axe the central government grant to councils over the next four years came in a comprehensive spending review that the Local Government Association (LGA) chairman, Gary Porter, a Conservative peer, described as a tragic missed opportunity to protect the services “that bind communities together, improve people’s quality of life and protect the most vulnerable”.

The chancellor had announced “a revolution in the way we govern this country” by giving town halls far greater fundraising powers, allowing them to keep 100% of business rates, rather than the current 50%, and increase council tax bills by 2% to pay for rising social care bills. But they will lose the grant worth £18bn across councils in England, according to the LGA.

Prof Tony Travers from the London School of Economics said Osborne’s changes were radical because they meant councils will only be able to increase revenues in the future by attracting more businesses to benefit from the changes to rates. He said it transformed town halls from “being a mini-welfare state into a local economic growth agency”.

But some of the most stretched councils warned that the changes would hit the poorest parts of the country hardest, where there were fewer businesses and taxpayers to make up for lost Whitehall grants.

The Labour leader of Newcastle city council, Nick Forbes, said the move would leave a £16m hole in his budget.

“The impact of removing government grants and leaving the city dependent upon taxing businesses would leave us £16m a year short, on top of the cuts we are already making. If these issues are not addressed, rich councils will get richer at the expense of the rest of us,” he said.

Liverpool city council said its social care bill currently stands at £172m a year, while the 2% increase in council tax unveiled by Osborne to help fund care for the elderly and people with mental health and other problems would only generate £3.2m a year.

Osborne also announced that he would increase the Better Care Fund by £1.5bn by 2020, which he said councils providing social care would be able to access.

“The steps taken in this spending review mean that by the end of the parliament, social care spending will have risen in real terms,” the chancellor said. “A civilised and prosperous society like ours should support its most vulnerable and elderly citizens.”

But Lord Porter was highly critical of the changes. “It is wrong that the services our local communities rely on will face deeper cuts than the rest of the public sector yet again, and for local taxpayers to be left to pick up the bill for new government policies without any additional funding,” he said.

“Even if councils stopped filling in potholes, maintaining parks, closed all children’s centres, libraries, museums, leisure centres and turned off every street light, they will not have saved enough money to plug the financial black hole they face by 2020.”

He warned that such services could be lost altogether as councils “protect life and death services, such as caring for the elderly and protecting children, already buckling under growing demand”.

Osborne said that by 2020, social care spending will have risen in real terms, but the LGA disputed his claim that council tax increases would deliver £2bn a year for social care, saying it was closer to £400m, and that a £700m funding gap for social care would only widen.

The impact of the council cuts led to warnings of an increased burden on the NHS, as more older people will need hospital and emergency care because they are not being looked after in their homes.

Dot Gibson, the National Pensioners Convention general secretary, said: “The social care system has suffered £4.6bn worth of cuts since 2010, and the chancellor’s plan to allow local councils to raise additional spending will be nowhere near enough to address the problem.”

Dr Rhidian Hughes, the director of the Voluntary Organisations Disability Group, which represents voluntary providers of social care for adults with disabilities, said the social care funding settlement was “woefully inadequate” and that the failure to invest in the sector was “a disgrace”.

John Trickett, the shadow communities secretary, said the prospects for local government looked bleak following Osborne’s statement.

“The whole of local government has taken a massive hit in recent years, but the poorest areas have been hit the hardest, and with additional pressures on local government in children’s services, public health and a range of other services, the situation is only set to get worse,” he said.

“The announcement on adult social care is particularly disturbing and the chancellor’s weasel words cannot disguise the fact that the government has abandoned any attempt to fund the care of our parents and grandparents.“Big questions remain about the decision to allow local authorities to retain 100% of business rates. Think what would happen to a council such as Redcar, where government negligence allowed a steel plant to close and ceased overnight, to pay business rates alongside having to provide support for those who lost their jobs.”