First of all – I want to say that I think Sir Albert Bore is right. He has made the right judgement call.
He has decided that the financial climate for this coming financial year is awful, but he will not be visiting Armageddon on us after all. He will salami slice for one further year. No decommissioning of whole services.
But he hears the hooves of the Four Horseman of the Apocalypse galloping towards us all ready to visit doom for next year.
Of course, ‘salami slicing’ is an awful euphemism if you’re going to lose your job and livelihood. But it does, perhaps, allow us pause for thought on the severity or not of what is to come; especially in the context of the obvious economic recovery.
This recovery is now actually taking place, however spluttering, fitful and years late it may be due to George Osborne’s dismal Plan A austerity drive.
Has Sir Albert actually bought some time by taking his foot off the Doom pedal? Might the nightmare be avoided? Or was it the case that the Jaws had been deliberately widened to give cover for a whole range of reasons, economic, practical and political?
First, let’s revisit the figures. Unfairly and damagingly for the whole economy, big cities like Birmingham (and it’s from the big cities that real recovery will come) have had to implement disproportionate massive cuts to their spending and impact on their local economies.
For this coming financial year 2014-2015, for Birmingham Sir Albert estimates (and he was £9 million out on his estimate this time last year) that Birmingham City Council will need to find £125 million in cuts.
This time last year he anticipated £94 million in cuts; when the budget came to be presented in February 2013 it had increased to £111 million.
Things have got worse during the year due to ‘government grant announcements’ and so-called ‘New expenditure pressures’. So now it’s £125 million. That’s huge by any standards when the controllable expenditure is now just over £1 billion. So the green papers which had been commissioned to find the original cuts of £111 million were meant to do the job.
They have in fact identified £68.4 million in cuts. When added to the ‘target’ of £20 million savings on the Service Birmingham contract (yet to be agreed it seems), the council has found £88.4 million in cuts. So that leaves a gap of around £37 million.
How on earth, with the service reviews at full pre-Armageddon tilt, did Sir Albert manage to end up salami slicing and not ‘Armageddoning’?
That’s when he reached and stretched down the back of the already fully rifled municipal sofa, pulled at the springs and grasped with clenched fists £37 million that appeared not to be there before.
Page 35 of the White paper explains it all: ‘Review of Pressures’ gave the council £15.2 million (including low interest rates continuing ) extra, taking out inflation gave £11.1 million, and ‘Grant Opportunities’ delivers £10.6 million. Bingo.
So, taking pay and price inflation out brings the Jaws down considerably this year. Last year, pay and price inflation were dealt with on a contingency basis and this year the contingency appears actually to have been used to reduce the £37 million.
This is pretty much a one-off rabbit out of the hat; hence no cumulation of this year’s figure over the next four.
Lower capital financing costs are included in the new figures because apparently the council had expected interest rates not to remain low next year. Why did it assume interest rates would rise? I understand that the formal advice of the council’s own treasury advisers, Capita, was that it was unlikely.
Meanwhile, the pressures apparently go back in for the next four years (i.e. the salami has been sliced to transparency) and there will be fewer grant opportunities, apparently, over the next few years, too, meaning, again, that what the council did this year we can’t do again. So well done, Sir Albert, on finding £37 million that no-one could have foreseen this time last year.
This, however, brings me to an area which I think still is absent from the search down the back of the municipal sofa, namely the fact that the economy is actually growing.
Sir Albert was asked recently whether his figures had included the impact of economic growth on the council’s and, indeed, the Government’s revenue position. Do the galloping four horseman need to, er, hold their horses? He told us that the impact of economic growth was irrelevant. I find it hard to believe that lower unemployment and increased economic activity will not increase direct revenues to the council or, perhaps more importantly, that the services of the council (and the increasing costs to the council) may in a context of economic growth, be less called upon.
Last year’s budget plan made clear that negative economic performance was “placing an increasing strain on the council’s resources” and that the high levels of unemployment were “expected to lead to strong demand for certain council services”.
Surely, Sir Albert, the converse must be the case for positive economic performance?
If the chancellor of whichever party is in power actually brings in a balanced budget with no deficit or a rapidly decreasing deficit (which is what economic growth will bring) by 2018, might s/he not step off the austerity pedal?
And might we need a new ‘Jaws of Hope’ that shows how economic growth could close the Jaws of Doom considerably?
So the salami slicing might just have been the right idea after all, Sir Albert!
* Professor David Bailey works at the Aston Business School