Richard Derecki: Sadiq Khan may have no choice about making big spending cuts

Richard Derecki: Sadiq Khan may have no choice about making big spending cuts

“I did not enter politics or run for Mayor in order to administer government austerity – and I am clear that the overwhelming majority of Londoners want to see investment in our future, not further cuts,” says Sadiq Khan in the introduction to his budget guidance to the Greater London Authority (GLA) and its various functional bodies.

But while he might not want to, the headline figures contained in this first run-through for his 2021-22 budget show that as things stand Mayor Khan is going to have to take a very large axe to many spending commitments. His proposal to move City Hall from Southwark to Newham will help, but not by anywhere near enough. 

At this stage in the process for setting the budget, which won’t be finally signed off until February 2021, the Mayor is laying out three possible scenarios for the different mayoral bodies – Transport for London (TfL), the Mayor’s Office for Police and Crime (MOPAC), the London Fire Commissioner (LFC), and his two development corporation (OPDC and LLDC) – to use as frameworks for their future spending.

A lot could still happen to change the financial landscape for good or bad in the coming months, but the current “best” estimate – which is actually the worst-case scenario – could see the GLA losing £493 million of business rates and council tax income this year and next. The Mayor notes how “no organisation could absorb a shortfall on this scale, and while I have prudently put aside significant sums since 2016 to meet unexpected risks, the scale of the challenge is far beyond what any Mayor could have reasonably prepared for”. There aren’t, therefore, the reserves to stem a deficit of this magnitude. 

While the Mayor, alongside his metro counterparts in other cities, clearly hopes the government will provide additional financial support to regional and local government, perhaps by shoring up the business rate system, he can’t depend on it. He has no other levers he can pull: his discretion over his Council Tax precept is limited and the current working assumption is that there will be a 1.99 per cent increase in the Mayor’s Band D precept for 2021-22, with the entire uplift arising from this change being paid to MOPAC and the LFC. No additional help there then.

All Mayoral organisations are therefore going to have to look at their already agreed budgets for this year and their projections for the next. The guidance makes clear that the Mayor wants to protect the budgets of “our most important frontline services like the Metropolitan Police and London Fire Brigade” and so he is asking them for lower percentage funding reductions than the other Mayoral bodies.

Even so, MOPAC is being asked to model savings of up to five per cent his year and eight per cent next – which could mean cuts of £45.5 million and £63.8 million respectively. The LFC is being asked to find two per cent savings this year and 4 percent next – or £10m and £15m. Larger percentage cuts are expected from TfL – of four per cent this year and 11 per cent next – which mean eye watering reductions of £75.5 million this year and £211.9 million next.   

While detail is lacking as to what these headline cuts will mean for services delivered to Londoners, the Mayor is keen to honour his commitment to fund 1,000 additional police officers, with the money for that already in MOPAC’s reserves. However, he notes that “plans for the use of this reserve are being considered by the Mayor’s Office and MOPAC…with the Mayor committed to maximising the number of police officers over the next few years despite the expected loss of income resulting from Covid-19.”

Further details will become available in November, when it will become clearer which parts of the Mayor’s agenda will have to be scaled back or sacrificed. It all makes difficult terrain for the mayoral candidates as they start to re-work their abandoned manifestos and think what their distinctive offer to Londoners will look like in our post-Covid city.

Richard Derecki is an economist and governance expert who has worked for the 10 Downing Street strategy unit and the Greater London Authority. Follow Richard on Twitter.

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Categories: Analysis

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