Birmingham and other major cities will be hit hardest by the Government’s plans for “momentous” spending cuts, writes Political Editor Jonathan Walker.
Britain’s big cities such as Birmingham and Wolverhampton are to bear the brunt of huge government cuts in council funding.
It has emerged that inner city areas will be most affected by the Government’s planned £1.165 billion cut in funding for local authorities.
Standard funding, which is distributed to every council equally on the basis of population numbers, will not be touched.
Instead, reductions will be made in the extra grants allocated to councils for specific purposes – which usually means projects designed to help deprived areas.
As a result, deprived areas will actually suffer the bulk of the cuts. For example, Birmingham receives £300 million in extra funding, about 18 per cent of its total budget, because it includes areas with high unemployment and poverty.
And Wolverhampton receives £66 million, more than 17 per cent of its total budget.
But for wealthy Stratford-upon-Avon, targeted grants make up less than one per cent of funding.
It means wealthier authorities have little to fear from government cuts while inner city areas will see their funding reduced.
And this is just one of the ways that the coalition Government’s planned massive spending cuts could hit Britain’s big cities.
David Cameron, the Prime Minister, has warned that the Government is planning “momentous” spending cuts which would “affect every single person in our country”.
He revealed Britain was £770 billion in debt – and was set to pay £70 billion every year in interest alone, more than the schools and transport budgets combined, unless spending was cut.
Mr Cameron’s hard-hitting speech, blaming Labour for the state of the public finances, was designed to pave the way for unpopular decisions.
Failing to cut the deficit would lead to “a steady, painful erosion of confidence in our economy,” he said.
The Prime Minister warned: “If that were to happen, there would be no proper growth, there would be no real recovery, there would be no substantial new jobs – Britain’s economy would begin an inevitable slide into decline.”
But a new report by think tank the Centre for Cities demonstrated how vulnerable Birmingham was to reductions in public spending.
The city has become increasingly reliant on the public sector to create new jobs – and to hide a dramatic slump in private sector employment, according to a study.
Figures published by the Office of National Statistics showed that the number of private sector jobs in Birmingham fell by 61,400 between 1998 and 2008.
This was offset by a rise in the number of public sector jobs, with 91,100 new posts created during the same ten-year period.
It means that the number of jobs in the city rose by 29,700, but this hid a dramatic decline in the private sector.
Other parts of the West Midlands also suffered and Stoke-on-Trent lost 20,900 private sector jobs between 1998 and 2008.
By contrast, the number of private sector jobs increased in both Manchester and Newcastle.
The report said: “In other cities, such as Birmingham and Burnley, growth in the public sector also helped to compensate for a significant decline in private sector employment. Going forward, of course, the situation will be very different. Our report estimated that up to 290,000 jobs could go from the public sector over the course of this Parliament. Other estimates have put the figure closer to 500,000.”
The importance of public sector spending to the region has been illustrated by the impact of the Government’s early announcement that it plans to make savings of £6.2 billion.
These cuts, announced shortly after the coalition government was formed, are likely to look modest once the real savings are announced in the emergency budget.
But they have included axing education quango the General Teaching Council – which employs 150 people in Birmingham.
Other education quangos including the Qualifications and Curriculum Development Agency and schools technology agency Becta, both in Coventry, are to be closed at the potential cost of 830 jobs.
Government subsidies for a number of housing schemes have been suspended, including £3.6 million for 115 new homes on the former MG Rover site in Longbridge, Birmingham.
These subsidies were designed to preserve jobs in the construction industry.
West Midlands Police is to face a budget cut of £7 million. It insists this will not affect frontline services.
And plans to rebuild more than 60 Birmingham schools at a cost of £2.4 billion, providing work for the construction sector, are also under threat.
The Government has also begun to dismantle Labour’s system of regional administration.
Funding for the West Midlands Leaders Board, which brings together the leaders of Britain’s 33 local authorities and costs taxpayers £3.3 million a year, is to be scrapped.
The board oversees the work of Advantage West Midlands, the regional development agency which itself spends around £200 million a year – but this is also set to be abolished.
While there has been confusion about the future of regional development agencies, Business Secretary Vince Cable appeared to put the final nail in the coffin when he told the House of Commons: “The Government intend to replace RDAs with local enterprise partnerships and to bring together business and local authorities to establish local accountability.
“Where they enjoy clear public support, the partnerships may take a similar form to existing RDAs. In making the necessary reductions in RDA budgets and reviewing their functions, we will seek to mitigate the impact on economically vulnerable parts of the country.”
Under the Government’s plans, the funding that currently goes to regional development agencies will go to local councils instead. But it is unclear whether there will be any money left.
Advantage West Midlands received budgets of £296 million in both 2008-9 and 2009-10. But this was cut by almost a third, to £202 million, for 2010-11.
And that was under Labour. The coalition government has announced another £270 million of cuts to be shared between eight agencies, which means budgets will be reduced by around £34 million each – on top of previous cuts – if the pain is shared equally.
Birmingham MP Liam Byrne (Lab Hodge Hill), shadow chief Secretary to the Treasury, was one of the first to condemn Mr Cameron’s speech.
He said: “Labour stopped recession becoming depression. Because we made the right calls. The coalition has inherited an economy that is growing, borrowing which is falling, and unemployment lower than in America or Europe.
“Everyone agrees that the deficit must fall, but we must do it fairly. And on that basis the coalition has made a poor start, cutting support from young people out of work, and breaking their promise to protect frontline services.”
In his no-holds-barred speech, however, Mr Cameron argued there were there reasons why drastic measures to cut spending were essential.
He said: “There are three simple reasons why we have to deal with the country’s debts.
“One: the more government borrows, the more it has to repay; the more it has to repay, the more lenders worry about getting their money back; the more lenders start to worry, the less confidence there is in our economy. “Two: investors do not have to put their money in Britain – they will only do so if they’re confident the economy is being run properly, and when confidence in our economy is hit, we run the risk of higher interest rates.
“Three: and the real, human, everyday reason this is the most urgent problem facing Britain is that higher interest rates hurt every family and every business in the land. They mean higher mortgages and lower employment.
“They mean that instead of your taxes going to pay for things we want, like schools, hospitals and policing your money, the money you work so hard for, is going on paying the interest on our national debt.”