Are we in this together? London and North worst hit by spending cuts

Poorest areas feel the pain with cuts of up to £221 per person – but for the wealthy it's just £47

Ben Chu
Thursday 02 February 2012 01:00

The poorest areas of Britain have suffered the largest cuts in local public service spending, while councils in some affluent regions have enjoyed spending increases.

London and the North of England have been especially badly hit by the cuts, according to research by the independent Institute for Fiscal Studies (IFS).

"Overall cuts in local government spending (excluding education) are largest in both absolute and proportionate terms in the high-spending regions of London, the North East and the North West," said the IFS in its 2012 Green Budget – a precursor to the Chancellor's Budget each spring.

Average cuts in London between 2009-10 and 2011-12 were equivalent to £221 per person or 11.2 per cent. Cuts in the North East were equivalent to £169 per person, or 12.6 per cent. In the North West, the average cut was £156 per person, or 12 per cent.

This severe austerity was in stark contrast with areas such as the prosperous South East, which saw cuts of £47 per person, or 4.6 per cent. Residents of the East of England experienced cuts of around £72 per person, or 6.7 per cent. And according to the IFS, one-tenth of councils are planning real increases in spending. "Over-represented amongst this group are local councils covering more affluent areas, particularly in the South of England," it said.

The reason for the regional discrepancy in cuts over the past two years is that councils in relatively deprived urban areas are much more reliant than councils in affluent rural areas on a central grant from the Treasury, which has been cut by around a quarter. Many London authorities, for instance, get more than 80 per cent of their revenues from the grant. Those councils that have seen their revenues fall dramatically have been forced to impose the largest cuts.

The IFS also yesterday labelled the Government's plans to remove child benefit from higher-rate tax payers as "neither efficient nor fair". It said that, after the reform, 170,000 families would be left in a position where they could increase their total income by reducing their pre-tax income. The solution, said the IFS, is to integrate Child Benefit with Child Tax Credit, which would taper the withdrawal of the benefit from wealthier families.

The think tank also gave some support to Labour's main economic argument by arguing that the case for a short-term fiscal stimulus to boost the economy is "stronger" than it was a year ago, although it added that "neither the argument for nor the argument against doing so is clear-cut".

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