Poor communities will be cut more than rich

by Michael Dugher

After the comprehensive spending review, the institute for fiscal studies said that the government’s policies will hit the poorest families harder than the better off. It said that the tax and benefit changes were “regressive”, and would have a greater impact, relative to income, on people at the lower end of the scale. David Cameron says “we’re all in this together”, but as various reports will show in the coming weeks, how badly affected you are depends on where you live.

Key to this unfairness are the cuts in funding to local authorities, who all face reductions of seven per cent a year. But this will not mean that all local authorities will face equal cuts in their budgets. The reductions in central government grant will clearly have a much bigger impact on those councils who serve more deprived areas. In areas like my own in Barnsley, needs are higher but the council tax base is lower. If you are more reliant on central government funding and raise less funding locally, you will not have the capacity to recover funding shortfalls.

This produces some astonishing anomalies. For instance, according to SIGOMA (who represent the large metropolitan councils), in Kingston-Upon-Hull, the eleventh most deprived area in the UK, only 33% of its budget is funded through Council Tax, resulting in a 7% cut in its overall funding next year. In Manchester, because only 31% of their budget is funded from revenues from the council tax, this leaves them an overall shortfall of 7.2%. In contrast, Windsor and Maidenhead have 78% of their budget funded from the council tax, leaving them a shortfall of just 0.5%. In Wokingham, 80% of their spending comes from council tax revenues, meaning they have a shortfall of only 0.2%. And in Surrey, the third least deprived area, where 82% of their budget is funded through council tax, perversely their budget will actually increase next year (by 0.01%).

The loss of the working neighbourhood fund (WNF) will also impact on the most deprived authorities. For example, Barrow-in-Furness, the 29th most deprived area in the UK, could potentially lose 31% of its overall grant (including WNF) compared with 13% for Surrey.

More generally, many of the weaker performing parts of the economy, in some of the most challenging parts of the country, have been especially badly hit by the comprehensive spending review. Here there is a higher reliance on public sector employment, not only as a provider of direct employment but also as a driver of private sector employment and economic activity. This makes them more vulnerable. Because of the lower capacity for short and medium term private sector growth, they are more in need of government support.

Tomorrow, Professor Steve Fothergill, of the centre for regional economic and social research at Sheffield Hallam university, will launch an important academic study: “Tackling Worklessness in Britain’s Weaker Local Economies”. It shows that the older industrial areas of the North, the Midlands, Scotland and Wales have by far the highest claimant rates of out-of-work benefits. Prior to the recession, the numbers out-of-work on benefits were falling, with the biggest reductions in the areas with the highest claimant rates. The recession brought a halt to progress, and hit industrial areas the hardest.

The Tory-Lib Dem government says that it wants to see a “private sector-led recovery”, but the report will also state, perhaps critically of the previous Labour government, that while employment was growing in Britain’s weakest local economies, more than 90 per cent of the job growth was in the public sector. Addressing this imbalance in the economy is not merely a challenge for this government, it is one for a future Labour government too.

But the scale of the challenge facing any government in trying to increase the employment rate of the worst performing local economies, in order to match those of the best performing parts of the UK, is made worse by the estimated 490,000 job losses we will see in the public sector. In those areas that are disproportionately reliant on the public sector, the effect will be felt much harder including in the private sector.

As Richard Lambert, the CBI director-general, acknowledges: “Everyone knows that we cannot cut our way to prosperity, so where are we going to create the jobs to offset the cuts in the public sector”?

Another recent report, produced by the coalfields regeneration review board for the department for communities and local government, led by the distinguished former MP for Barnsley, Michael Clapham, considered how government can best support regeneration of the former mining communities in particular. It made it clear that areas like Barnsley are more isolated than others and have a higher mortality rate, greater health difficulties, greater overall deprivation, fewer businesses per head of population, 25% fewer jobs per resident, and that there are more young people not in education, work or training. The picture is similar in many post-industrial local economies.

To make matters worse, money for regional growth has been cut by two thirds over the next three years. And the abolition of the regional development agencies (RDAs), to be replaced by local enterprise partnerships (LEPs), is another blow. RDAs have done a good job for regional economies with the national audit office saying that “it is reasonable to conclude that the RDAs’ activities have been beneficial overall”, showing that £3.30 is generated in the economy for every pound invested.

The Conservatives and the Lib Dems, helped by some sections of the media, say that there is no alternative to the scale and timeframe of the government’s public spending cuts, and that these cuts, undertaken in this way, are vital to eliminating the deficit. The government will urge the country to pull together, almost in a spirit of the Blitz, and to grin and bear this necessary austerity. But for all David Cameron’s talk of “we’re all in this together”, it would seem that some of us are more “in it” than others. Getting that message across to the public will be an important for Labour in the coming months.

Michael Dugher is Labour MP for Barnsley East and a shadow defence minister.

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One Response to “Poor communities will be cut more than rich”

  1. This is all true, but simply stating this isn’t enough. Yes, Eric Pickles is deliberately engaging in an excessively partisan class war, but who expected anything different?

    He wants to do it, and the cuts give him the excuse.

    Which means that here we need to not just argue against these cuts but cost how we’ll pay for them. And as to a large extent these will be cuts to benefits and support services used by poorer citizens, we’re very vulnerable on this point to tabloid attacks. If you aren’t a very committed political activist or working in local government, it’s unlikely you have any idea what an area-based grant is and it’s much easier to tell lies about scroungers and Labour over-spending than it is to explain how these things work and why it’s relevant.

    Because of this, we need a response that’s equally populist. We need to be explaining who we’ll take the money from, and it needs to be an easy answer. And it can’t just be Tory councils, or we’ll be accused of excessive partisanship ourselves.

    The only way out of the problem that I can see is increasing taxes on the wealthy and on bankers and cutting some universal benefits. The problem is that the first two have a limited rate of return, and will piss off the (high-earning) media, whilst the last kind of goes against the last few months of Labour policy. And by doing this we’ll piss off bits of ‘Middle England’. Only the bits of Middle England we were aiming at circa 2004, not the bits of Middle England that ever voted for us, but that’s a hard habit to unlearn nevertheless.

    It’s a conundrum, and if somebody can see a better way out of the trap I’d love to hear it. Because just denouncing these cuts isn’t enough. We’d be right, but it wouldn’t change anything, except pushing turnout down still further in our core areas as Labour councillors can offer their constituents little more than impotent rage on their behalf.

    We need to make the case that there is a clear and costed alternative to these cuts, and we need to make these cuts unacceptable. That needs a clear and populist media strategy, and possibly a concerted plan to make Cameron sack Pickles. Protest alone won’t do it here.

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