There is certainly mounting anger at the circumstances in which this awful disaster took place. The Royal Borough of Kensington and Chelsea (RBKC) is, after all, one of the richest parts of London which in turn is significantly richer than the rest of the country. The argument runs that the poor people in North Kensington – the part of the borough perceived to be less salubrious – were ignored in a way that their richer counterparts elsewhere in the borough were not. There is, in some quarters, an attempt to pin blame on the Conservative Party for their stewardship of the economy which promoted the cost cutting culture which allowed the tragedy to take place. Without wishing to delve too deeply into the politics of this extremely sensitive issue, it is certainly worth looking more closely at the issue of local government financing to shine some light on the difficulties of running a local authority in the current hostile fiscal climate.
In fiscal year 2010-11, central government funded 76% of local authority (LA) spending. Since then the value of the transfer has fallen by 32% and the share of local spending funded from Westminster has fallen to 57% (chart). By way of compensation, local authorities are now allowed to retain a higher proportion (50%) of what they collect locally in the form of business rates (a levy on local businesses). Nonetheless, total LA spending has fallen by almost 10% over the last six years. Across the country as a whole, the budget for 2016-17 imposed the largest cash reduction on education services compared to 2015-16 (£765 million) whilst the biggest proportional reduction fell on highways and transport services (-10.6%).
Matters are not going to get any easier in the years ahead: By 2020, the government has committed to phase out its transfer to local government, which will be compensated by the fact that local authorities will be able to keep 100% of business rates revenue. As it currently stands, only 12.3% of revenue is derived from business rates. Even assuming this doubles by 2020, this will in no way be enough to compensate for the elimination of the central government grants, which will still be required to fund 45% of local spending unless there is a correspondingly huge decline in total outlays. For this reason, the system which gives protection to those authorities with lower levels of business rate income looks likely to be heavily utilised. Nonetheless, given this difficult backdrop, it is hardly surprising that local government spending is being slashed.
Although it is the smallest of London’s 32 boroughs, RBKC’s gross outlays in 2016-17 amounted to £680 million. On a net basis, the borough’s net spending undershot its budget by around 4% (£8.2million) in fiscal 2016-17, and the accounts show that in each of the last two fiscal years, the borough has recorded a surplus on the Housing Revenue Account (£12.2 million in 2016-17 and £19.6 million in the previous year). On the basis of these numbers, this appears to be a LA which has put the squeeze on. For comparative purposes, I looked at the accounts of the City of Newcastle partly because they are similar in scale to those of RBKC, and also because the leader of Newcastle council, Nick Forbes, was one of the first to advocate cutting frontline services in the wake of the London-imposed fiscal squeeze. Interestingly, the Newcastle HRA showed an even bigger surplus in 2015-16 than RBKC of over £26 million.
Undoubtedly, local authorities will say that these surpluses are ring-fenced and will be used in future for housing related activity. So they should: local councils are, after all, non-profit organisations. But in the wake of the Grenfell Tower fire, there are those who question why the likes of Newcastle are making a net return of 22% on their local housing activities. However, life is not so simple. The reason why councils run an HRA surplus is that their finances are subject to a whole host of other regulations imposed on them by central government and part of the surplus reflects precautionary saving. They have far less autonomy than is believed even in cases like this where they nominally control the budget.
However, there is a much wider issue at stake here. Whilst we spend a lot of time fretting about general public finances in the UK, we devote relatively little time to looking at local finance issues. But we should, because it is primarily at the local level that we consume public services. We see austerity all around us at the local level: A library closure here, a request to buy extra school textbooks there. It all adds up to a very stretched system.
There is no doubt that over the last 30 years, local authorities have been subject to a considerable amount of central government influence which has allowed them to deflect blame for much of their actions onto Westminster. Indeed, it is only recently that they have been given any autonomy to hold onto the revenue they generate locally. Whilst it is true that decisions taken in London have forced local authorities to squeeze local spending, as they gain an increased degree of control over local revenue generation they will be able to break free of some of these constraints. In return, they will have to be held increasingly accountable for their actions. It will no longer be enough to say that the frequency of household refuse collections has been reduced to fortnightly thanks to central government decisions. More importantly, the prevention of disasters such as those occurring in West London will increasingly be viewed as the responsibility of local, rather than central government.
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