Mack the knife

Author: Kieran Larkin
Date: 25/05/2010

The Government yesterday announced details of the £6 billion of cuts that it will make in this financial year. But what does this first taste of austerity mean for the UK's cities?

Firstly, and most importantly, these cuts are very much a statement of intent rather than the real heavy lifting - that will be done in the Emergency Budget and Spending Review. The £6 billion is a start, but only a fraction of the total reduction in spending that will be required. Many of the items identified - reducing consultancy budgets, stopping IT contracts and cutting the cost of quangos - are the type of savings that most people would advocate in the good times.

But cities will feel the pain. The three departments that have been allocated the largest savings to make - the Department for Business, Innovation and Skills (£836 million), Communities and Local Government (£780 million) and the Department for Transport (£683 million) - are all big spender in UK cities. Their spending is important to cities' economic growth.

As expected, Regional Development Agencies (RDAs) have been a big loser in the first round of cuts, with £270 million of lower value RDA spending being targeted. This represents a 15 percent cut on this years' RDA budget. It has been suggested, but not confirmed, that the majority of these saving will be found from the budgets of the southern RDAs. This makes sense, in these regions the private sector is in less need of support. However, it also highly unlikely that this will be the last RDA cuts that we will see and RDAs', or Local Enterprise Partnerships - their successor bodies, budgets will be trimmed further. In terms of future economic growth, the cuts to transport expenditure will have a bigger impact than sacrificing RDA spend.

On skills it probably fair to say that the announcement reflects shifting government priorities, rather than deep and vicious cuts. The savings outlined see a 10,000 places reduction in the planned increase in university admissions next year (there will now be 10,000 extra places rather than an extra 20,000) and the Train to Gain budget is being cut by £200 million. On the other hand, £150 million will be spent on extending the number of apprenticeships and £50 million will be spent Further Education (FE) capital projects.

At the city level, local government has been told that its share of the cuts is to be £1.165 billion. At 19 percent of the £6 billion cuts, it is slightly less than local government's share of total government expenditure. Offsetting the pain, a further £1.7 billion of worth of grants has been un-ringfenced, an increase on this year's Area Based Grant of 35 percent. This will give local government a bit more flexibility to make the cuts that reflect different areas' priorities, although the Government could have gone further and removed the ringfence from elements of education spending.

The cuts announced yesterday do indicate that the Government is serious about tackling the fiscal crisis. The cuts are specific and, in as much as the departments will actually have less money to spend, the ‘efficiency saving' will be delivered. For cities there has been a hint of the austerity to come, but for now, the really difficult decisions still remain to be taken in the future.