The implications of the Spending Review on services for children

Chancellor George Osborne delivered his long-awaited Spending Review on 25 November, which set out the government's plans for public sector spending from April 2016 to March 2020.

The headlines were dominated by the government's U-turn over tax credits and the fact that the widely predicted cuts of 30 per cent across unprotected government departments failed to materalise, thanks to a £27bn improvement in the public finances since the previous forecasts in July's Budget.

While some public sector budgets were protected, local government was not one of them. As a result of changes, the Local Government Association (LGA) calculates core funding for councils will fall 24 per cent in real terms over the next four years. The government hopes this cut will be offset by giving councils more powers to raise and keep more of their own income, but, even with this factored in, the real terms cut is projected to be 6.7 per cent.

What the measures will mean for children's services will become clearer after the release later this month of the local government funding settlement for the next three years. Only then will the true extent of the cuts to individual council budgets become clear.

But the measures announced in the review mean children's services funding through the Department for Education and Department for Communities and Local Government will fall, with non-statutory services set to bear the brunt. Combined with benefit system changes, the landscape for the next four years looks tough for the deprived and vulnerable children and families.

CYP Now analyses the implications for the future of children's services, young people and families.

The impact of cuts to the Education Services Grant

While DfE funding will grow slightly in cash terms over the course of the parliament, much of this will be protected for schools.

Meanwhile, the Education Services Grant (ESG), paid to local authorities to fund educational, welfare and health support to schools, will fall from £800m to £200m (see graphic).

This will significantly reduce the amount of funding per pupil, which could have wide-reaching implications for a whole range of services and council functions.

The Chancellor announced that the government will consult on reducing local authorities' roles in running schools and remove a number of statutory duties.

Cuts to the ESG will be implemented from March 2016, but John Fowler, policy manager at the Local Government Information Unit, says cuts will take place before any of the newly announced changes to local authorities' statutory duties can be made.

"The statement said that the government would remove some council duties, which may or may not be connected to the ESG supported duties. If primary legislation is required to remove these, the earliest year that any changes take effect is 2018/19," he says.

"The worry is that councils will say the government doesn't care about the council role in education and so we may as well cut it. If Ofsted says 'it's not functioning well', councils will say 'take it away then'. If you want a good service, you need to fund it properly."

Roy Perry, chairman of the Local Government Association's children and young people board, says the ESG is crucial for schools.

"The ESG helps ensure that children are getting the education they deserve, from helping to provide speech, physiotherapy and occupational therapies, and making sure that children are in school when they should be, to carrying out police checks on staff and providing music services in schools.

"It also helps to plan for the new school places that are urgently needed, ensuring that every child has a place at a good school near their home. We need urgent clarification on how the £600m cuts will be achieved, and how quickly, without impacting on welfare and standards."

The Spending Review also had a focus on academies, and, according to the LGA, it represented the next step towards the government's goal of ending local authorities' role in running schools, and all schools becoming an academy.

Osborne said the government will "make local authorities running schools a thing of the past".

Removing statutory duties on schools is the start of a quiet revolution, says Enver Solomon, director of evidence and impact at the National Children's Bureau.

"It indicates a fundamental change in how education provision and the role of local authorities in co-ordinating that will fundamentally change in the next five years, towards a more diverse landscape," he says.

Fowler says councils may decide to use the dedicated schools grant (DSG) to fund ESG functions, but adds that this will depend on any changes to the DSG regulations.

"There will be a white paper in the spring about removing councils' functions with a bill to follow, so the changes will not be in place until 2017/18. This will cause huge uncertainty."

Perry has concerns over the Chancellor's drive on academies.

"The announcement that all schools will be helped towards academy status seems to dismiss the fact that 80 per cent of council maintained schools are rated as 'good' or 'outstanding' by Ofsted. Councils should be regarded as education improvement partners rather than as a barrier to change.

"Hundreds of schools, often in disadvantaged areas, are being turned around thanks to the intervention of local councils and it is clear that strong leadership, outstanding classroom teaching, and effective support from staff and governors are the crucial factors in transforming standards in struggling schools, rather than the administrative status.

"Schools spend billions of pounds of public money, yet, at present, there is no rigorous accountability for academies that are 'coasting'; no clear understanding of what happens when one falls into this category; and no risk assessment in place for those rated as good or above. Local democratically elected councils should have a role in this."

The effect DCLG budget cut will have on councils

The Department for Communities and Local Government (DCLG) was badly hit in the Spending Review. The department's overall budget will shrink 20 per cent by 2019/20, while the amount of funding it gives to councils through the central grant will drop 56 per cent. The government says this will be partially offset by allowing authorities to keep 100 per cent of business rates, rather than the current 50 per cent, and allowing them more flexibility to raise council tax. The overall funding to councils, therefore, is predicted to fall by just 6.7 per cent in real terms.

Authorities will not know the full extent of how the central grant cut will impact on them until the local government settlement later this month, which will determine their annual funding.

There will also be a 3.9 per cent fall in public health funding, which the LGA says will have a "significant negative impact on essential prevention and early intervention services".

Enver Solomon also fears public health funding cuts will harm prevention work. "It is inevitable that services like school nurses, health workers, sexual health services, and drug and alcohol services will lose out."

In response to the DCLG cuts, Patrick Murray, head of policy and external affairs at think-tank NPC, says that with local authorities focusing even more on their statutory duties, money to fund additional services will be "scarcer than ever".

Amanda Kelly, executive director at Impower, says it is "deeply concerning" that none of the Treasury's £27bn windfall is going towards children's services.

She says it will be a "false economy" if councils cut early help and prevention services, because other areas of local government spending, such as adult social care, are protected. "Any savings that are made are a one-off receipt, plus there is no guarantee inappropriate referrals into social care will not rise as a result of cutting early help," she adds.

"If the result of a protected adult service is a more severe cut on children's services, only the very foolish would be looking to retreat from early help and prevention as a means to deal with it.

"Surrendering early help and prevention, and leaving children and families to reach crisis point unaided, is a means to break your services, not save them."

Kathy Evans, chief executive at Children England, says the Chancellor's announcements will leave many councils that have already made deep cuts to non-statutory services facing the prospect of reducing this further.

"Most councils cannot see any light at the end of the financial tunnel, having cut swathes of earlier intervention and community services to preserve child protection and care budgets," she says.

"With no end to the cuts in sight, and the demand for care tripling over the past six years, they have been left with an impossible problem to solve.

"We should be in no doubt that it is children who will now pay the price for the complete lack of concern for children's services in this Spending Review.

"I could not be more worried about the immediate prospects for children's services, and especially so for the councils in the most deprived areas of the country - whose cuts are the most severe."

Alison O'Sullivan, president of the Association of Directors of Children's Services, says the changes will present councils with unprecedented challenges.

"These cuts will place already pressed council budgets under further pressure and in many places both preventative and frontline services will be at risk.

"When paired with the impact of cuts across all public services, many local authorities will no longer have the resources needed to provide vital care for children, young people and their families. The future of providing services for the most vulnerable will be tougher than we have ever experienced before."

Meanwhile, Roy Perry, chairman of the LGA's children and young people board, says local authorities must increasingly target diminishing resources at those children most in need.

"In times of financial difficulty, it is vital that local and national government come together to give vulnerable children the support and protection they need," he says.

"With resources so scarce across the public sector, it is now more important than ever this funding is carefully targeted to build local capacity and support local activity.

"While the protection for police budgets should allow for a continued focus on the investigation and prosecution of child abuse and exploitation, the police cannot do this work alone."

Will extra funding create more childcare places?

In the run-up to this year's general election, the Conservatives announced plans to double the free childcare entitlement for children aged three and four. Alongside that, it promised to raise the average hourly rate paid to providers via local authorities.

On the same day as the Spending Review, the Department for Education announced the findings of its consultation into what the new hourly rate - which will come in from April 2017 - should be.

For three- and four-year-olds, it will increase from £4.56 to £4.88, and from £5.09 to £5.39 for two-year-olds (see graphic).

These rates include the early years pupil premium (EYPP) and indicate an average across all children.

The department also announced plans for a new national early years funding formula, on which it will consult next year.

Overall, the government claims an additional £1bn will be invested per year by 2019/20 on childcare.

The DfE will spend £300m to increase the hourly average funding, and protect in cash terms the existing annual EYPP pot of £50m. An extra £50m in capital funding will be allocated to fund changes to premises to create additional places.

The government also announced eligibility criteria for the additional 15 hours of free childcare that will shave £280m off the cost of implementing the scheme as first planned (see graphic).

It will only be available to children whose parents earn the weekly equivalent of 16 hours or more at the national minimum or living wage, and who each earn less than £100,000 per year. This equates to 390,000 families.

Purnima Tanuku, chief executive of National Day Nurseries Association (NDNA), says the extra funding is a welcome step.

"The sector is now looking carefully at the details to establish whether the increase is sufficient to support the government's ambitious promise of 30 hours' free childcare to working parents," she says.

"The government must work to make sure that every penny secured for early years goes straight to the frontline of childcare.

"That means protecting the funding by ringfencing it so local authorities, who we know are under pressure with increasing demands on their education funding, pass it all on to nurseries and childminders."

But Neil Leitch, chief executive of the Pre-school Learning Alliance, warns that there are some unanswered questions.

"Given that early years funding rates vary from local authority to local authority, it's difficult to understand how the additional funding announced today will translate in practice.

"How will it be distributed across different local authorities? Will rates increase evenly across all provider types?

"We are also concerned by the news that the increased rate for three- and four-year-olds includes the early years pupil premium.

"Given that this is currently additional funding available only to children from disadvantaged backgrounds who meet very specific criteria, we are unclear as to why this money has been factored into the general three- and four-year-old rate."

Leitch also says that if the sector is to achieve long-term sustainable funding, it needs more than just a one-off rate rise.

"It means a mechanism that ensures that funding continues to cover costs in the long term, in the face of rising business costs such as rent increases, pensions contributions and, of course, the 'national living wage'," he adds.

"With the pilot 30-hours scheme set to begin next year, it's vital that the DfE provides clarity on what this increase means in practice for the sector, how it will be implemented, and what it will do to ensure that it is distributed fairly and effectively across the sector."

Roy Perry, chairman of the Local Government Association's children and young people board, welcomes the investment, but says councils need more freedoms over how it is spent.

"The announcement of at least £50m of capital funding will help to create much-needed nursery places, and local authorities should have the freedom to invest in extending provision in maintained schools where it would benefit parents and children to do so," he says.

"Councils currently have limited powers over providers, and limited scope to extend provision. For the new scheme to work, powers must be returned to councils to make sure that early education offered is of the highest quality."

Fall in family welfare benefits will do little to help eradicate child poverty

Despite the Chancellor's U-turn on his widely criticised plans to cut tax credits, billions of pounds will still be taken from family welfare support by 2020.

This will come from the introduction of Universal Credit from 2018, putting a two-child limit on tax credit support, reducing housing benefit and increasing the number of families hit by the benefit cap.

Once the £1bn of savings from Universal Credit and housing benefit cap have been added to already announced reductions in welfare, the benefits bill is projected to fall by £6.2bn by 2019/20 (see graphic).

It has been estimated that this could leave some working families with children £1,300 worse off a year on average, while the poorest 20 per cent of the population will lose £750 (see graphics).

Alison Garnham, chief executive of Child Poverty Action Group, is concerned that the Chancellor has not prioritised tackling poverty.

"His decision to drop the latest tax credit cuts is very welcome and will be a huge relief to hard-up working families but, as the Treasury's own costings reveal, the significant cuts to Universal Credit mean that in reality this is only a stay of execution.

"It was always wrong to cut support for working families in tax credits and it's still wrong to cut help for these same families in Universal Credit, which replaces tax credits.

"The Welfare Reform and Work Bill going through parliament also cuts tax credits for families in a number of ways, but it seems it will go forward unchanged," she says.

"Spending reviews are about setting out the government's priorities. After the Prime Minister's party conference pledge to mount an assault on poverty, we are disappointed that apart from the U-turn on tax credits there is little evidence the government is putting its money where its mouth is when it comes to fighting poverty."

NCB's Enver Solomon says the measures outlined in the review will still leave families worse off.

"Tax credit cuts are, in effect, a U-turn on immediate cuts, but by no means a reversal of future cuts through the introduction of Universal Credit. Children and families will still be worse off - the government is still committed to cuts on welfare spending.

"It's important to recognise it's a change of heart, not a change in the overall substantial reduction of benefits going to children and families. In stark contrast, there is a triple-lock on state pensions, but there is no equivalent for families and children. It is unbalanced and disproportionate."

Kathy Evans, chief executive at Children England, welcomes the tax credit U-turn, but says more work needs to be done to tackle child poverty. "There is no room for complacency on child poverty and low pay," she says. "The hardship being experienced in families all over the country remains as real and as damaging today as it was yesterday.

"Benefit cap reductions, further cuts in disability support and the impending impact of Universal Credit create a desperately bleak prospect for all families already struggling to make ends meet, pay the rent and control spiralling debts.

"Nothing in the review gave young people any cause for hope that the labour market, the housing market or the state's safety net will work, or pay out, for them over the next five years."

Cabinet Office projects expanded

Over the next five years, the Cabinet Office budget will rise from £400m in 2015/16 to £600m in 2019/20.

Although exactly how this will be spent is unclear, the Chancellor committed to expanding the National Citizen Service (NCS), which supports young people aged 16- to 17-years-old to take part in residential activities and community projects, to 300,000 places.

David Reed, director of Generation Change, says the commitment is "fantastic news", but raises concerns over the limitations of the programme.

"The impact will be limited without support for younger age groups to get interested and engaged in social action before the age of 16 - as well as support for more committed forms of civic service that young people can progress on to after their three-week NCS experience," he says.

An additional £20m will also be made available for social impact bonds (SIBs). SIBs see investors pay for a project at the start and then receive payments based on the results achieved by the project. The funding will be targeted at schemes that tackle issues such as youth employment.

Peter Harrison-Evans, a researcher at New Philanthropy Capital, said the additional money suggests the government is looking to shift funding towards preventive strategies in some areas.

"The commitment to direct some of this money towards youth employability schemes reflects the significant number of social impact bonds already up and running in this area," he says.

Meanwhile, women's health and support charities will gain from the £15m a year raised through the Tampon Tax. Five charities will receive a slice of the first £5m including Women's Aid and The Eve Appeal.

Polly Neate, chief executive of Women's Aid, said the £2m it receives will go towards a domestic abuse early intervention project called Sooner the Better. "We are also pleased that the contribution from government forms parts of a wider pot for women's organisations," she says.

"While we welcome this money being used to help women, we need to be clear that domestic abuse is not just a women's problem, for taxation on women's products to solve it is an issue for everyone in society, and men and women must address it together."