Treasury relaxes ring fencing to enable councils to choose where to make cuts as local government bears brunt of deficit reduction

The Treasury has announced the relaxation of ring-fencing with a value of £1.7bn on several streams of funding to enable councils more choice in how to implement funding cuts of £1.165bn, the biggest single component of the government's deficit reduction plan announced this morning (24th May).

The cuts in funding will be made up of a reduction of £405m in the Department for Communities and Local Government's (DCLG) Local Government budget and cuts in funding from other central government departments, including Transport, the Home Office and the Department for Environment, which have all been asked to make significant reductions in their expenditures. In addition, the DCLG is being asked to find a further £780m in savings in the 2010-2011 financial year, the second-largest of any department.

Which funding streams will have their ring-fences removed has yet to be announced, except for confirmation that ring-fences around schools and the Sure Start programme will not be removed this year.

However, the formula grant for local authorities, which presently stands at £29bn, will not be cut this year, nor will the schools, Sure Start 16-19 year olds services budgets. Savings of £670m required from the Department of Education will need to come from “waste reduction” at the department and some of the quangos it funds.

Other cuts announced by the Chancellor of the Exechequer, George Osborne, and the Chief Secretary to the Treasury, David Laws, included £600 million from costs of running quangos and £270m from “lower value” Regional Development Agency spending.

The Treasury also announced a small number of new spending commitments, including £170m for 4000 new social houses, £50m for further education colleges and £50m to cover backdated business rates bills.

Eric Pickles, Communities Secretary, said: "The spending decisions we have outlined today show our determination to help tackle the immense public deficit the new government has inherited, whilst shielding council services like rubbish collections and social care.

"There will be no reduction to the £29bn general grant that local government receives every year meaning that they have the flexibility they need to protect the frontline. But this is also an opportunity to devolve real power to councils. By removing ringfencing and red tape and freeing up resources councils will be free to focus on delivering essential services.

"Councils have already made big efficiency savings in recent years. Central government needs to follow that example. We are putting tough controls on Whitehall spending. A radical scaling back of the scope and interference of quangos and putting power with councils and communities will deliver significant savings, ensure services are meeting the needs of the people that use them and cut out waste."