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October 28, 2021

Spending Review 2021: What it Means for Local Government Tech

By Robert Stoneman

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The Spending Review offers hope for hard pressed local councils and a clearer commitment to levelling up, though it will still leave the sector worse off than it was a decade ago, meaning further pressure to balance the books despite rising demands, says Robert Stoneman, Service Director at GlobalData.

With a more generous real-terms rise in departmental budgets than many expected, yesterday’s Budget and Spending Review (SR21) finally offered councils a glimpse of a post-austerity world. The Chancellor, Rishi Sunak, promised the sector the “largest increase in core funding for over a decade”, something that will be welcome considering it has faced cuts totalling £15bn in real-terms since 2010. 

However, when taken in the context of a decade of austerity, the headline grabbing figures promise evolution, not revolution, when it comes to councils’ ability to spend. This blog will outline the major announcements and establish what it all means for technology suppliers to local government, as well as highlighting some tech tidbits that slipped under the radar.  

Increased Core Funding  

A headline grabbing £4.8bn increase to grant funding over the next three years would, on paper, amount to an average real-terms increase of 3% a year in core spending power, a greater rise than many senior local authority leaders expected. On top of this, the Chancellor announced a further £2bn for schools “to support education recovery”, with an extra £4.7bn promised by 2024-25. Several announcements effectively amount to a cut to business rates of £7bn over the next three years, though luckily councils will be compensated for any lost revenue as a result. Funding for the devolved governments also increased, up £4.6bn for Scotland, £2.5bn for Wales and £1.6bn for Northern Ireland, raising the prospect of extra money for local authorities outside England as well.  

While a step in the right direction, this will not be enough to reverse a decade of austerity that has left many councils’ finances in a perilous state. It has been estimated by the Local Government Association that, by 2024-25, the sector needs an extra £8bn just to maintain services at current levels, £3.2bn short of what was announced. The rise also assumes that local authorities will increase council tax and the adult social care precept to the maximum allowed under current rules: 2% and 1% per year respectively. This means councils will again be forced to look at other means to plug the gap: cutting costs, dipping into reserves, selling assets, or increasing income generation. 

Ironically, this also could work to hinder wider levelling up. Using council tax to fund part of the new settlement puts more pressure on councils with historically lower tax receipts, hitting deprived areas especially hard. The decision not to fundamentally reform business rates also does not help matters since historically some areas benefit from a stronger local economy compared with others (though the abandonment of 100% rates retention has dampened this threat). To top things off, rising demand for social care and an increase in the minimum wage could mean much of the new funding is swallowed up by care alone, leaving other service lines in the same position as they are now. This is good news for suppliers in the social care space (e.g., care management systems and technology-enabled care providers), but less so for those catering to other business lines.   

Levelling-Up 

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With such inequality in mind, the Chancellor’s speech claimed that levelling up would be the “golden thread” that runs through SR21. On the plus side, he outlined the first allocation of £1.7bn from the Levelling Up Fund, which will go to fund “everyday” infrastructure within 105 local authorities, including over £342m for those in Scotland, Wales and Northern Ireland. This includes former “red wall” areas and Labour-held constituencies, such as Ashton-under-Lyne and Doncaster, both of which were referred to in the Chancellor’s speech as a push-back against claims that previous cash delivered via the Towns Fund went disproportionately to Conservative constituencies. While many of the initial schemes will not involve major tech investment, there are several aimed at regeneration of town centres, and improving physical and digital connectivity that most certainly will involve some ICT spending.   

The Chancellor also confirmed that cash delivered via the UK Shared Prosperity Fund – a replacement for EU funding aimed at sustainable economic development and reducing economic inequalities – will match or exceed levels previously provided by the EU, in this case, £2.6bn over the next three years. On top of this, he also announced the first 21 projects to benefit from the £150m Community Ownership Fund. While much of this will have little in the way of ICT, he did cite the example of the development of a new community digital hub in Cushendall, Northern Ireland, so there could be similar opportunities elsewhere. 

However, outside of these funding pots, councils still lack real detail over what levelling-up will mean in the long-term, especially if it will take account of local priorities and lead to any further major devolution of funding and powers to local areas. The Government remains notionally committed to devolution, but in practice seems intent on retaining as much control in Whitehall as possible. This point was illustrated by the fact that priorities for the UK Shared Prosperity Fund will be partially set in Westminster, even if allocated to the devolved nations. Also worrying is the vague commitment to publish the Levelling Up White Paper, which will flesh out much of the detail, “by the end of the year”. This makes it is increasingly likely that it will be delayed again to sometime in 2022, leaving councils and combined authorities in the lurch.   

Dedicated Cash for Transport, Cyber and Procurement 

Opportunities around levelling up also need to account for additional cash earmarked for transportation. SR21 outlines £21bn for roads and £46bn for railways, with a guarantee to spend £5.7bn on building transport systems across city regions inspired by those in London, including £1.2bn for transforming bus services and £2bn for cycling infrastructure and minor roads.  

There is currently little in the way of detail as to the technology implications of these announcements beyond a significant £360m commitment to modernise ticketing and retail systems. However, we might expect new local authority investments in areas such as traffic and transport asset management, as well as mobility-as-a-service (MaaS) schemes designed to improve on-demand transport options. Keep an eye out for further analysis down the line if and when more details are published.  

Elsewhere, one announcement of direct relevance to local government tech suppliers is £38m over three years earmarked for tackling cyber security challenges and investing in local authority cyber resilience. Together with maintaining the funding that was announced at the last spending review, this will bring total funding for cyber to £86m over the next three years.  

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