The Chamberlain News

Government’s living wage policy ‘lands town halls with £834 million bill’

The Chancellor’s decision to adopt the National Living Wage will land councils in England and Wales with an unexpected £834 million a year wage bill, it was claimed today.

The estimate is contained in a wide ranging list of cost pressures building up for town halls published by the Local Government Association.

According to a detailed submission to the Treasury ahead of the November Spending Review, councils already hit by unprecedented cuts in grant will have to find a total of £10 billion to maintain services at existing levels and to implement government policies over the next five years.

George Osborne’s surprise announcement in his post-General Election budget that the Living Wage will replace the minimum wage, starting at £7.20 and rising to £9 an hour by 2020, will have serious implications for local government, where a high proportion of jobs are low paid.

Councils will also have to find about £800 million a year in increased national insurance contributions following the end of state pension contracted out arrangements in 2016.

The LGA has calculated government policies to be implemented over the next five years will cost councils £6.3 billion by 2020.

It projects this is on top of the extra £3.6 billion of “business as usual” pressures to maintain services at their current level based on demand-led and inflation pressures on local government services.

The LGA, which speaks for more than 370 councils in England and Wales, is warning the Chancellor that failing to fully consider these unfunded cost burdens in the Spending Review could result in important local services being scaled back or lost altogether.

Cost pressures include:

• Exempting house builders from Section 106 & Community Infrastructure Levy payments – used to fund infrastructure to support new developments – for 200,000 new starter homes for first-time buyers. An average S106 payment of £15,000 per home would see £3 billion lost over the course of the parliament.
• Reducing rents paid by social housing tenants by 1 per cent a year will cost councils £2.6 billion – this is planned revenue to improve and maintain social housing stock and is the equivalent cost of building an average of 19,000 new homes.
• Setting aside £1.75 billion to cover the high volume of business rate appeals expected when the 2017 revaluation is introduced.
• Rolling out Universal Credit for previous housing benefit claimants will make it difficult for councils to collect overpayment debts worth up to £1 billion.
• Introducing the National Living Wage for council staff and care workers over the age of 25 will cost councils £834 million a year by 2019/20.
• Increased National Insurance contributions of £797 million a year following the end of state pension contracted out arrangements in 2016.
• Meeting the growing gap between what care self-funders and England’s 37 County Councils’ Network member councils pay care home providers is estimated to cost £630 million. On a population basis, the LGA projects the cost impact on England would be roughly double that.
• The additional £172 million annual cost of carrying out higher numbers of Deprivation of Liberty Safeguards assessments following a Supreme Court judgement last year.
• Treating growing cases of tree disease and pests, such as Chalara ash dieback and oak processionary moths, to cost upwards of £100 million.

The LGA’s submission also identifies further areas where additional costs will be incurred but are difficult to quantify. These include changes to support for failed asylum seekers and unaccompanied child asylum seekers, freezing Local Housing Allowance, the benefit cap, increased demand for children’s services, increasing waste recycling targets and the 75 per cent of leisure centres across the country in need of refurbishment.

The Spending Review must be about “spending smarter, not only about spending less” in order to balance the nation’s books while improving public services and local economies, the LGA said.

LGA Chairman Cllr Gary Porter said:

November’s Spending Review will be critical for the future of our public services over the next decade. Our new analysis shows the significant spending pressures facing councils over the next few years even before the possibility of further funding reductions.

Leaving councils to pick up the bill for new national policies while being handed further spending reductions cannot be an option.

Enormous pressure will be heaped on already stretched local services if the Government fails to fully assess the impact of these unfunded cost burdens when making its spending decisions for the next five years. Vital services, such as caring for the elderly, protecting children, collecting bins, filling potholes and maintaining our parks and green spaces, will simply struggle to continue at current levels.

We need the decisions in the Spending Review to be guided by the fundamental principle that local people will know best how to spend money on services in their area.

If our public services are to survive the next five years, councils need fairer funding and the freedom to pay for them. Only radical reform of the way public money is spent and widespread devolution of transport, housing, skills and health and social care across England in the Spending Review can protect the services which bind our communities together and protect our most vulnerable.