Birmingham City Council’s financial challenge

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Difficult Financial Outlook

Birmingham City Council will be opening the consultation for the 2013/14 Budget next month against a backdrop of greater than previously notified grant reduction from national government.

The council’s grant from the Government has already dropped by £140m, 14% in cash terms, in just two years. Next year the council is forecasting further grant cuts of at least 6% (£52m) but this situation could be worse. The Government is introducing significant levels of uncertainty and instability at a very late stage in local authorities planning cycle. For instance, the Government intends to transfer more responsibilities from the council to schools but is taking more money off the council than is currently spent on these services. So the grant reductions could be significantly more.

If our funding from Government Revenue Support Grant were to have increased in line with inflation we would only have needed to make budget cuts of £16m each year over the six year period 2010/11 – 2016/17 – a total of £96m compared with £600m now forecast.

Over a six-year period from 2010/11 to 2016/17, the forecast total Government grant will reduce by £332m. At the same time, we will need to fund unavoidable cost increases due to the effects of inflation, the changing basic needs of our population, changes in legislation and financing costs. These are expected to cost £273m extra by the end of 2016/17, meaning that we will have to make savings of over £600m or more by that time – that’s around 48% of the total spending over which the council has control.

The timing of these reductions is shown in the table below.

Total cumulative savings requirements to 2016/17.


YearGrant reduction £mCost increases £mTotal £m
2011/12102111213
2012/13140135275
2013/14*192207399
2014/15*244247491
2015/16*291257548
2016/17*332273605

* The figures for these years are estimates.

We have an immediate challenge for next year 2013/14 to save around £120m of the £600m total.

To meet this level of challenge we will take a strategic approach. The need for this was recognised in the Independent Finance Review which said:

“We believe that the council should decide not only which services, delivering which priority outcomes, will take precedence in council spending, but also clarify explicitly which current services will not have priority status and which will be de-commissioned in the face of the significant budget cuts it faces.”

Forecasts

We are doing our best to ensure that our forecasts are as accurate as they can be. The Independent Review has indicated that our assumptions made regarding the continuing reduction of government grant “appear to be well judged”.

They are also consistent with national forecasts. The Local Government Association (LGA, 2012) has made a projection of future local government spending against future spending needs, demonstrating that this is a national problem not confined to Birmingham.
“A gap opens out in 2012/13 and then continues to widen every year through to 2019/20. The overall funding gap starts at about £1.4 billion in 2013/14 in cash and amounts to over £16.5 billion in 2019/20.” (LGA, 2012, p.8).
Funding Reductions

The disproportionate impact of grants reductions on Birmingham can be demonstrated using the Government’s own preferred measure of “spending power”, the total amount a council receives from general Government Grants and Council Tax income. For Birmingham this has reduced by 11% over the last two years, compared to the national average reduction of 7.7%.

Urban areas such as Birmingham, with high levels of need and lower than average ability to raise income through Council Tax have been treated less favourably than more affluent areas. The recent Independent Review
qualifies this statement –

“the cuts in grants between 2009?10 and 2011?12 have generally meant that, across England, high-spending local authorities, which are typically relatively grant dependent, have seen larger cuts to their overall spending power than lower-spending authorities, and have therefore had to make larger spending cuts (both in absolute and in percentage terms)” (IFS, 2012, p.131).

To give some relevant examples for 2011/12:

AuthorityDeprivation indexSpending power reduction
Birmingham38.678.3%
Windsor and Maidenhead8.511.06%
Wokingham5.360.63%

If Birmingham had received the average spending reduction in 2011-12 of 4.5% we would have received £48m more in that year alone.

Council Tax

Over recent years the council has had a policy of low council tax increases. While this has kept bills down to households, it means that the council now has less council tax income available to fund its services than the other core cities.

The council is considering what the council tax should be for 2013/14 but it has very little leeway. It may also be surprising to note that council tax at present levels for 2013/14 only contributes £256m of the council’s total income, and any 1% increase represents around £2.6m. In the context of the budget savings required this is a limited amount.

Its long term financial plan agreed by the council in February 2012 assumes a 1.9% increase, but under a recent Government announcement, if it proposed to increase its council tax element by more than 1.66% there would need to be a local referendum (a 1.66% increase would give a £0.6m shortfall against the plan). Alternatively, it might accept a one year Government Grant equivalent to 1% but this would mean that it lost £2.3m next year against its plans, and more in future years.

Again the Independent Financial Review recognised this issue and said: “Birmingham has increased council tax less rapidly than the average metropolitan district. Although this is a political decision, it does appear as though a rise in council tax should at least be considered as a way of maximising income and offsetting the reductions in central government funding, in the medium term, if not in the short term”.

We have already delivered and planned huge savings.

BCC has already implemented a substantial savings plan in order to live within its current level of resources. By 2012/13 we will have delivered £275m of general fund savings with another £200m across the next two years followed with a further cut in excess of £100m over the following two years.

Even before the current spending reductions, the City Council had been making significant efficiency savings every year for several years and our Business Transformation programme represents a leading example of how modernisation can lead to savings of many hundreds of millions of pounds over time. This work is continuing, but we are now looking ahead to the pressures of the next few years.

Priorities for Birmingham

In February 2013 Birmingham City Council will set a budget for 2013/14 that makes the necessary tough decisions whilst prioritising Economic Growth and adopts the following principles:-

• Safeguarding the most vulnerable
• Putting fairness at the heart of our decision making
• Emphasises early intervention, to prevent problems occurring
• A smart city – using new technologies

The cuts to date have not been easy, and the need to significantly reduce expenditure remains. The council has reached a point where efficiency and transformational savings are becoming even more difficult but there is still a need to significantly reduce expenditure further in order to operate within the constraints of the government cuts and meet the rising social demand created through unemployment, skills shortage and housing needs.

The Way Forward
As part of ongoing dialogue with the people of Birmingham, the council invites the views of the public on the 2013/14 budget savings proposals in November and December. We want as many people as possible to have their say on the budget that affects their city.
We take our duty of care to citizens in the city seriously and we are having to care for our elderly and protect our children in the face of funding reductions. The extent of the future financial challenge facing Birmingham will change the landscape of local government not only in Birmingham but nationally – we will have to decommission a number of services.
To continue to provide priority services for our residents, Birmingham City Council will have to adapt and make changes to how services are run. We have already started our strategic planning for this for 2014/15 and onwards. We will engage with the public on this work in the New Year, after the 2013/14 Budget has been determined. The challenges that we, the council and the public, will need to consider going forward include:

• Changing the expectations of what the council will provide directly and what might fall to other agencies and to schools
• Focussing resources on the city’s top priority outcomes;
• Fundamentally changing how public services are organised
• Increasing citizen responsibility
• Reducing demand
• Identifying new approaches to funding

Birmingham City Council
October 2012

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