This week’s article in Public Finance on the multifaceted cost pressures that are currently casting a shadow over local government is unlikely to constitute shocking news to even the most casual observer. Nevertheless, the intricacies behind these challenges warrant closer inspection.
Councillor Shawn David, Chair of the Local Government Association (LGA), succinctly captures the prevailing sentiment; “Inflation, the National Living Wage, energy costs and increasing demand for services are adding billions of extra costs just to keep services standing still”.
Local authorities reserves being spent to uphold services
In a revealing revelation, the article references a BBC investigation which projects local authorities are poised to dip into their reserves to the tune of over £1 billion in 2023 in order to uphold essential services.
But what is driving this change, exactly?
The forces driving this increase become clearer when scrutinizing the year-on-year changes across different categories of spend, with the Top 20 categories with the highest spend increase in Oxygen Insights Spend collectively constituting almost 80% of the increase within those categories in growth (Apr-22-to-Mar-23 vs Apr-21-to-Mar-22).
Fuel costs put the Highways & Transport market in the cost-growth driving seat
Among these Top 20 categories, it becomes evident that those within the ‘Highways & Transport’ market have borne the brunt of escalating costs. Approximately half of this surge within this market can be attributed to the ‘Community Transport, including Taxi’s‘ category. This category, which is comprised of many small taxi firms without the ability to hedge fuel costs, remains particularly susceptible to fluctuations in fuel prices-at-the-pump, a characteristic it shares with the ‘Public Transport’ and ‘Fleet Services’ categories.
Energy price increase also pushing up Buildings market costs
Indeed, Energy costs emerge as a key antagonist in the cost equation. The surge in spending on ‘Electricity’, ‘Gas’, and ‘Mixed Utilities’ categories has also significantly contributed to the mounting expenses within the ‘Buildings’ market as a whole.
This shift in dynamics means that ‘Highways & Transport’ is overwhelmingly the market demanding the most substantial increase in spending, and this fact is likely a contributing factor in the ‘Waste & Environment’ and ‘Culture & Leisure’ markets suffering year-on-year spend declines.
The significance of this shift is not lost, especially when considering the backdrop of just 12 months prior, where in spend growth terms the ‘Highways & Transport’ market was in a distant fourth place, trailing behind the ‘Buildings’, ‘Health & Social Care’ and ‘Corporate’ markets.
One thing is clear – energy costs will continue to take a toll on the public purse for the foreseeable future.