News Insight: Children's Services - How will the Chancellor's plans affect the sector?

The government last week published the Pre-Budget Report and the Local Government Finance Settlement. Together, these documents provide professionals with the information they need to plan children's services for the year ahead.

Chancellor Alistair Darling plans to revive Britain's flagging economy by pumping £20bn into it next year. But he will recoup the cash, plus a bit more, in the following three years.

He will also accelerate capital projects worth £800m. This means primary schools in around 40 local authorities could be rebuilt or refurbished sooner than expected.

As for local authorities, the government has committed to funding their annual settlement in line with last year's Comprehensive Spending Review. But councils have warned that rising inflation and increased demand for services could render the settlement inadequate.

Ministers have promised to safeguard key public services. But can the government protect children's services from the credit crunch?

Increases in child benefit and Child Tax Credit will help families short term, but the long-term effect of this cash injection is uncertain.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, believes there is cause for concern. He claims the Chancellor's plans equate to a £37bn cut in public spending between now and 2014, based on the fact spending is set to increase below the rate of inflation.

When Darling delivered the report he pledged to avoid cutting services by increasing efficiency savings. However, back in March 2005 he claimed Tory plans to cut public spending by a similar figure would decimate services. "The Conservative Party is committed to making cash cuts of £35bn from Labour's public spending plans - cuts so large they could only be found from cutting deep into frontline public services," he said.

Less surprising, but no less important, was last week's Local Government Finance Settlement. Caroline Abrahams, programme director for children and young people at the Local Government Association, says local authorities will face new challenges despite the unchanged settlement plans.

"There are local authorities having to make cuts, but they don't have many places to make these savings," she says. She warns that family support work and preventive services will be first to go because they are seen as lowest priority.

Debbie Jones, chair of the Association of Director's of Children's Services' resources and sustainability policy committee, says the settlement had few surprises. But she warns small changes to grants must be monitored. "One issue is that our supporting people grant is no longer ringfenced, which includes our care leavers' grant," she says.

Darling insists he will "step up help for families with children" in the face of the bleak economy. However, only time will tell how much public services will really suffer.

THEN

"The Conservatives want to make cuts of £35bn - cuts so large they could only be found from cutting deep into frontline public services"

Alistair Darling, March 2005

NOW

"There is a point at which frontline public services would be affected - and we will not pass that point"

Alistair Darling, November 2008

The Institute of Fiscal Studies claims the Chancellor's plans equate to a £37bn cut in public spending between now and 2014

IMPACT OF THE PRE-BUDGET REPORT ON CHILD POVERTY

The Campaign to End Child Poverty has claimed the Pre-Budget Report is a "missed opportunity" for the government to get nearer to its target of halving child poverty by 2010.

"The Child Tax Credit and child benefits have been brought forward but it is a small positive and does not increase the chances of hitting the target," says Hilary Fisher, director of the campaign. "There needs to be an almost £3bn investment in Child Tax Credit and benefits next year to halve child poverty by 2010," she adds.

Fisher believes the planned 2.5 per cent cut in VAT will also be of little use to families in poverty as "most of their money goes on necessities such as fuel and food".

Donald Hirsch, author of a number of child poverty reports for the Joseph Rowntree Foundation, believes the government is currently falling behind on its own targets.

"The government is probably at least half a million behind in its efforts to pull 1.7m children out of poverty by 2010, according to present projections," he says.

IMPACT ON THE EARLY YEARS SECTOR

The response to the Pre-Budget Report within the early years sector appears to be that any savings are always welcome. But leading figures believe the government is making small gestures in a climate where real effective change is required.

"The support for small businesses will probably have a negligible effect on most providers," says Steve Alexander, chief executive of the Pre-school Learning Alliance. "The majority of nurseries are small businesses but the support schemes will save them comparative pennies to the pounds they are losing through sustainability challenges," he adds.

The measures Alexander refers to are: the Small Business Support Scheme, supporting up to £1bn of bank lending; the Business Payment Support Service, enabling employers to spread the cost of tax repayments; and generous tax relief to businesses currently making a loss, allowing for them to reclaim tax on profit for the last three years for up to £50,000, in addition to the unlimited claims they can already make on the previous year's profit.

Cuts could be undermined

Alexander warns that the 2.5 per cent VAT cuts could be undermined by the administrative costs of changing prices, while National Day Nurseries Association chief executive Purnima Tanuku believes the cuts will not make much difference to settings. "Up to 80 per cent of costs for day nurseries are salaries. There will only be savings made on things such as supplies, equipment and repairs," she says.

Many early years providers appear to share this view. Lynda Pirie, manager of the Croft Pre-school Nursery in Aberdeen, Scotland, says: "I don't feel any of the measures have helped us greatly. The planned increases to National Insurance in 2011 is what we're most worried about."

The childcare element of the Working Tax Credit continues to be a contentious issue for early years providers. It was the only element of the credit that was not increased in line with inflation.