Countering the cuts myths

 

 

 


 

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DEVOLUTION, AUSTERITY AND INCLUSIVE GROWTH IN GREATER MANCHESTER:

ASSESSING IMPACTS AND DEVELOPING ALTERNATIVES

Executive summary

Dr David Etherington

Centre for Enterprise and Economic Development Research (CEEDR) Middlesex University

Professor Martin Jones

Centre for City Region Dynamics (CCRD) Staffordshire University

With assistance from Caroline Bedale, Keep Our NHS Public

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The Government’s Devolution Strategy

In late 2014, the UK Government announced its flagship Northern Powerhouse initiative, whereby city regions were to be given more ‘powers’ to develop initiatives in their local areas, as part of wider policy aim of ‘re-balancing’ the economy and regenerating city economies, which for many years lagged behind in terms of growth and prosperity. The Northern Powerhouse expands on and consolidates previous devolution initiatives allowing the Local Enterprise Partnerships (LEPs) and local authority leaders from Manchester, Leeds, Liverpool, Newcastle and Sheffield to collaborate ‘strategically’ on key issues. This includes increased powers over transport and economic planning; electing their own Mayors; some powers to manage health; new employment and skills power via apprenticeships; and in 2017, the co-commissioning of welfare to work. The underlying principles of devolution growth policies are for a greater reliance on the private sector and the market to deliver growth supported by targeted infrastructure investment. Much of the devolution debate though has been focused on North American-inspired agglomeration models of economic ‘growth’, with pressing questions now being asked on what kind of local and regional development and for whom?

Following an earlier study of devolution in the Sheffield City Region, we argue in this report that devolution involves devolving austerity because policies and funding are framed to meet Spending Review targets, which underpin the Conservative Governments austerity strategy. At the same time there has emerged a debate and policy focus on the possibilities of promoting inclusive growththe Government has announced the formation of the Inclusive Growth Economy Unit, the University of Manchester establishing the Inclusive Growth Analysis Unit (IGAU), the Royal Society of Arts (RSA) Inclusive Growth Commission and various studies convened by the Joseph Rowntree Foundation (JRF) putting forward the need and possibility of linking growth to poverty reduction. Inclusive Growth is being defined here as growth, which benefits all people and in particular disadvantaged groups in the labour market. We contend that inclusive growth is an important development and counterpoint to what is a dominant neoliberal and market dominated discourse of growth. However, we also argue in this report that inclusive growth is incompatible and fundamentally being undermined by austerity, which has framed the Northern Powerhouse devolution strategy. The report on the Greater Manchester devolution growth model is an evidence review to inform debates and raise awareness and discussion regarding how austerity impacts on growth.

The Economic and Financial Context to the Greater Manchester City Region

We contend that an analysis of the ‘city region’ problem requires a longer term analysis of structural economic changes where our starting point is the impact of the recession in the late 1970s and early 1980s. Austerity has actually underpinned the problems of the northern economies stemming from the economic and fiscal policies of the Thatcher Government in the early 1980s. Successive Governments have in fact squeezed spending in relation to the regions. The National Audit Office (NAO) reports that over the five-year period 2010/11 to 2014/15 the government will have spent £6.2 billion on local growth programmes, including that spent via RDAs and their legacy, and on new funds and structures. By comparison the RDAs spent £11.2billion over the preceding five-year period 2005/06 to 2009/10. The UK

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actually devotes significantly lower resources as a proportion of GDP on active labour market policies compared with most other countries in the EU.

The NAO assessment of the financial context of devolution can be summarised as follows:

  • ? The government will have reduced its funding to local authorities by 37% in real terms between 2010-11 and 2015-16. This represents a 25% real-terms reduction in local authorities’ income once council tax is taken into account and a four year financial settlement in 2016 represents an 8% real terms reduction in local authorities’ income from 2015-16 to 2019-20, taking account of both central government funding and council tax.

  • ? In health, in December 2015, we reported that the Department of Health and its arm’s-length bodies agreed that there would be a £22 billion gap between resources and patient needs by 2020-21 but it was not clear how the NHS would close this gap.

  • ? The Adult Skills Budget has been subject to repeated cuts since 2010. Between 2010 and 2014, funding fell by approximately 35% and by 2020/21 adult skills funding will have been nearly cut in half in real terms from 2010/11.

  • ? Spending on specialist support under the new Work and Health Programme has a projected budget of £130million representing a cut of more than 80% from the Work Programme and Work Choice alone.

    The problems facing Greater Manchester Devolution Deals and strategies relate also to the structural and inherently uneven spatial economic growth of the UK economy. The history and current attempts in ‘rebalancing’ economies are based on insufficient resources and an inbuilt bias towards London and the South East in the distribution of public spending. Both recessions of the 1980s and 2008 has had a major impact on economic growth in Greater Manchester. Economic development has involved a restructured and more flexible labour market with employment growth based on insecure work and low pay. The dominant trend in Greater Manchester is a distinct squeeze in wages and living standards for a significant proportion of the population who are in work and experiencing poverty. Both low pay, long term and youth unemployment present significant challenges for Greater Manchester. A lack of sufficient labour demand lies at the core of the problem. But the solutions to Greater Manchester’s problems require a national as well as local economic strategy involving sufficient investment where the public sector has a prominent role. Austerity and cuts undermine any attempts to regenerate the city economy and actually reinforce the ‘race to the bottom’ of low pay and skills, and economic exclusion.

    The Manchester Devolution Settlement

    The Manchester Devolution deal represents the most developed ‘model’ of devolution in England outside London involving responsibility for a wide range of major policy areas; and within the area of health and employment this includes, devolved business support budgets, welfare to work and co commissioning new welfare to work programme, operation of a Life Chances Investment Fund for social provision, control of the Apprenticeship Grant for Employers, responsibilities for re-structuring the Further Education (FE) provision via Area Based Review, local commissioning of outcomes to be achieved from the adult education budget starting in academic year 2016/17; and will fully devolve budgets to the Combined

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Authority from academic year 2018/19 with joint planning of integration of NHS health and social care services/budgets. These arrangements, however, do not cover apprenticeships.

The devolution of austerity is at the core of policies in terms of the way strategies provide the framework for implementing the plans outlined in the Spending Review. As a result of austerity more money is being sucked out of the city region than allocated to deliver the devolution settlement. Between 2010-2017 cuts of up to £2billion have been made to local government and over £1billion of social benefit income is being made annually as a result of welfare reforms. It is questionable whether devolution funding will address the needs of deprived communities and areas in the face of continued relentless cuts to public services. There is little public discussion and debate or an acknowledgment that austerity can actually be a cause of some of the fundamental economic and social problems facing the City Region.

Austerity: Undermining the Devolution Settlement

Local Government Cuts

A recent paper by the GMCA New Economy sets the devolution deal in the context of the Government’s deficit reduction programme. To achieve a net budget surplus by 2019-2020 an extra £3.5billion of savings needs to be found over and above previous plans and an additional £9.9 billion cuts in revenue spending in 2020-21. Local authorities could, given previous experience disproportionately feel the brunt of these cuts, although this is now made more complicated by the fact that local government is expected to be funded out of business rate revenue.

Local authority cuts in support services for disadvantaged groups are undermining and hindering the effectiveness of welfare to work and skills programmesthis can undermine growth and raising GVA levels. Local authority spending has been reduced by over £1bn between 2010-2016/7. Local authorities are pro-active in developing their own employment and skills strategies and provide important services, which assist disadvantaged groups to access the employment and skills system. In this way, austerity is actually undermining growth, as GVA targets are dependent on raising overall incomes in Greater Manchester and North.

The scale of the cuts is unprecedented and it is estimated that the total cuts on a national basis will have been 56% between 2010 and 2020. Many local authorities (LAs) in England are dealing with unprecedented ‘budget gaps’ – that is, a massive shortfall in resources resultant from the combination of funding reductions and cost pressures. Table 1 summarises this, pointing to the loss of over £1bn.

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Table 1 Local Authority funding cuts in Greater Manchester 2009/10-2015/16

 

Total service spend 2016/2017

2009/2010

Actual loss in income

% Cut in spend

Manchester

429,312

685,822

-256,510

-37

Salford

160,147

290,901

-130,754

-45

Trafford

145,922

197,303

-51,381

-26

Stockport

191,329

261,298

-69,969

-27

Tameside

142,968

197,303

-54,335

-33

Bolton

183,515

265,717

-82,202

-28

Wigan

185,748

325,855

-140,107

-42

Bury

122,209

179,267

-57,058

-32

Oldham

156,901

272,117

-115,216

-42

Rochdale

158,018

243,027

-85,009

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Total

1,876,069

2,918,610

-1,042,541

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-34.7

Source: Institute of Fiscal Studies

Skills and Further Education Cuts

The New Economy Unit of the GMCA has undertaken an assessment of the cuts to ASB. They state “following this year’s (2014/2015) Spending Review there are likely to be significant cuts to the non-apprenticeship Adult Skills Budget of around 35%” and “this will mean potentially that the average-sized college could see between £400,000 and £800,000 wiped from its non-apprentice and traineeship adult skills funding”. This will have significant consequences to the provision available across GM and could impact on the ability of some providers to have sufficient critical mass to continue delivery of adult skills.

Employers though continue to demand higher skill levels, but there also continues to be issues of poor utilisation once those skills are created. The importance of skills utilisation rather than increasing the supply of skills seems to be the step change required in breaking the ‘low pay low productivity’ cycle. In this respect, funding for FE Colleges and their role in supporting the development of skills ecosystems is crucial for supporting the GM growth agenda and this has also been subjected to drastic cuts. A report on the Area Review summarised the funding context stating that the approach to the Area Review in Greater Manchester mirrored what is happening elsewhere in the country and is set within the context of there being an estimated net liability of circa £1.5bn in the post 16 education and skills system nationally. Furthermore SFA funding for adults has fallen by 30%. To meet the challenges the scale of reconfiguration required in GM, and the opportunity to realise the ambition for transformational integration of employment and skills investments through devolution, requires a new approach to market and stakeholder engagement.

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Welfare Cuts and Disadvantaged Groups

Government welfare reforms are essentially designed with austerity and deficit reduction in mind.

pointing to the loss of between £800m for 2015 and a projected annual loss of over £1.4bn by 2020.

Table 2 Total Income Loss via Benefit changes in Greater Manchester

A key element of reducing the welfare bill is to restrict eligibility to benefits via a

tougher claimant agreement which is embodied in the Universal Credit (UC) which has been

rolled out throughout Greater Manchester. Table 2 shows the annual loss of income as a

result of the welfare reforms in local authorities in Greater Manchester,

 

Estimated loss £m 2015

Estimated loss £m1

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Financial loss per working age adult £ 2015

Financial loss per working age adult £ per year2

Manchester

160

320

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440

870

Salford

87

139

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509

870

Trafford

51

85

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351

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590

Stockport

67

117

385

660

Tameside

72

123

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522

880

Bolton

81

153

485

870

Wigan

94

156

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455

770

Bury

52

90

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440

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770

Oldham

76

137

501

970

Rochdale

76

131

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466

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980

Totals

816

1,451

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Source: http://www.shu.ac.uk/research/cresr/sites/shu.ac.uk/files/welfare-reform-2016.pdf

The welfare changes and cuts impacts disproportionately and negatively on disadvantaged groups. Local authorities within the GM region have also identified the adverse impact of benefit sanctions.

Women are among a variety of groups including lone parents (also mainly women), BMEs, disabled people, young people and people with no or low level qualifications who are disproportionately impacted by the cuts and are vulnerable to poverty. The implication of this is that a direct impact of the cuts is to increase the demand on other services as people attempt to cope and manage extremely difficult and complex situations. For example, Manchester City Council state that the demand for advice services has risen significantly. The GMCA has acknowledged that the welfare reforms will have an adverse impact on growth. This is estimated at potentially up to £1 billion, equivalent to 2% of total output in the

1 This refers to the total loss pre and post 2015 reforms with anticipated impact to 2020. 2 This refers to the total loss pre and post 2015 reforms with anticipated impact to 2020.

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GM economy. This does not take account of the financial costs of child poverty as a result of welfare cuts.

Health and social care policies

Devolution is clearly about the complex politics of austeritydevolving financial responsibility, which at least in Health and Social Care, involves an inadequate budget from the start. The estimate is that Greater Manchester will need over £8 billion by 2020, but only received £6.2 billion. There’s also a £450m transformation fund, but it was estimated that Greater Manchester needed at least £1bn to make the sort of changes in services which are planned. As part of the government’s Five Year Forward plan, England has been carved into 44 ‘footprints’ to come up with ‘Sustainability and Transformation Plans’ for health. In many areas these footprints bear little relation to existing structures, although Great Manchester is the footprint. Because of devolution, Greater Manchester was already a long way ahead of other areas in producing plans about transforming services, new models of care, improving outcomes, radical upgrade in population health and preventionand all the other jargon. But underlying it all is the ‘financial challenge’. With a devolved health and social care budget for GM of just over £6 billion, the 10 councils and NHS commissioners have to find massive savings.

The Role of Trade Unions and Civil Society Organisations

Civil society organisations such as trade unions, NGOs and the voluntary and community sector3 are an essential part of the economic and social fabric of the local economy and will play a crucial role in terms of inclusive growth. The impact of austerity on this sector is significant and needs to be factored into inclusive growth strategies.

The Community and Voluntary Sector operates around a diverse set of thematic areas, although a significant proportion are active in the fields of social, health, community development, training and education. Thus there is a key focus of activity on inclusive growth. The report in its survey of CVS organisations found that the decline in sector's income over the last three years represents the first long term economic contraction in the sector in at least 10 years.

Towards a Social Devolution Settlement: Key Recommendations Devolving financial powers to local government

3 Winyard P and Davies N (2017) Local Needs, Local Voices: Building Devolution from the Ground Up, NCVO 7

Trade unions both in the Greater Manchester region and through the North West TUC have been engaged in addressing pressing challenges relating to poverty and inequality within the region through representation on the Greater Manchester Poverty Commission and responding to devolution policies. In the implementation of Living Wage Campaigns and addressing in work poverty and promoting work place training and career development, the role of trade unions will be important.

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We acknowledge a range of studies and experts who call for greater redistributive financing arrangements, which recognise place and locality contributions to the national growth model and where there is scope for increasing discretionary funding and revenue streams.

Integrate social dialogue in the city region decision making process

We argue that devolution should involve a democratic process which includes active engagement of various social partners in creating inclusive policy and political dialogues.

Health and Social Care Service receiving sustainable funding

We argue for:

  • ? An adequately and appropriately funded NHS based on public provision and a public debate regarding how the current budget gap and underfunding is going to impact on NHS services.

  • ? To promote the democratisation of NHS planning including public involvement in the drawing up of the Sustainability and Transformation Plans (STPs).

  • ? A fuller appraisal of the resource implications for the NHS of rolling out the Work and Health Programme which addresses the needs of people with long term health conditions.

    Redesign welfare to work programmes that work for claimants

    We propose that a claimant agreement is designed and piloted, which reduces the incidence of benefit sanctions and involves adequate representation and advice for unemployed people within the claimant process. Integral to this is a modified work assessment process for disabled people based also on employer involvement and support for work place adjustments and more developed career guidance and signposting for claimants. Integrating welfare to work with skills is essential. Everyone should have free access to the whole range of options offered by Further Education, Higher Education, vocational training and apprenticeships. The contracting, privatisation and deployment of payment by results models of employment policy has not been evidence-based in terms of success in meeting the needs of disadvantaged groups. Local authorities are in an ideal position, with the commensurate funding, to deliver welfare to work and skills programmes.

    Designing growth strategies to address poverty reduction

    The GM economic strategy is largely fostered on supply-side economics and its ‘trickle down’ approach. There also needs to be a focus on demand-side approaches, which can be targeted at disadvantaged groups and an overall greater integration of the employment and skills system. Apprenticeships will play a key role in up-skilling in the SCR with the introduction of the Levy, but the quality and local brokerage of apprenticeships is crucially

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important and also complementary skills programmes, which assist disadvantaged groups, need to be in place.

Developing a gender perspective on inclusive growth

A gendered analysis provides a window into how growth and inclusion can be more closely linked. Public investment in social infrastructure makes economic sense, as it not only generates employment, but also contributes to gender equality and human development. Reducing the employment gap is not the only gender inequality that could be improved through investment in care. Wages and working conditions in the care industry (including Health and Social Care which is identified as a key growth sector by the GMCA) would have to improve considerably if such an investment were to be successful, given existing retention and recruitment problems in the industry. Achieving high quality care is a gender issue in its own right, since women predominate among one significant section of care recipients, the elderly.

Developing social investment projects throughout the City Region Apprenticeships

Apprenticeships should be designed with respect to standards set down in an Apprenticeship Charter relating to pay, work quality and mentoring. Also there needs to be clear routes and pathways to accessing apprenticeships via schools and FE system. We recommend that a work and skills plan should be drawn up with the trade unions as well as employers and funding requirements based on both a demand and needs based assessment. The possibility of pooling levy funding exists and establishing a regional skills fund needs to be explored which can fund social investment projects such as Unionlearn workplace skills and Job-Rotation described below.

Promoting Unionlearn

Unionlearn was established in 1998 and was charged with promoting work place training and providing strategic direction on TUC policy on skills under an agreement with the Government Department of Business Innovation and Skills. The evolution of the Unionlearn and the Union Learn Representatives (ULR) has brought the need to include training within a bargaining agenda more into focus. Unionlearn schemes target low skilled workers and thus can contribute to addressing the low-pay, low-skills, cycle.

? The labour market policy aspect is met by training and job placement for unemployed persons.

Implementing Job-Rotation Projects

Job-Rotation was developed in Denmark in the late 1980s, where the concept of training, development and work experience of unemployed adults is combined with employer needs for planning training and progression for their existing staff. Under Job-Rotation:

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  • ? Adults are supported to return to the workplace, matched as closely as possible in terms of their skills and abilities to a suitable job rotation opportunity.

  • ? Still receiving their unemployment benefits, which is topped up so that they are working for the agreed rate for the job, supports the unemployed adult.

    City-region governance building provides favourable conditions for implementing this.

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