For children’s services funding, standing still is going backwards
Before the Chancellor's Autumn Statement, Senior Policy Advisor Sam Atwell looks at the impact of the cost-of-living crisis on children's services budgets in England
This week, the Chancellor Jeremy Hunt delivers his Autumn Statement, which will help set out the government’s tax and spend plans for the coming years.
The Chancellor’s statement comes in the midst of a cost-of-living crisis. Inflation (the speed at which prices are rising) is at its highest for over thirty years. This is having a big impact on families up and down the UK, many of whom are struggling to afford the basic essentials. But it is also having an impact on public services, which must also pay gas and electricity bills as well rising staff salaries, rent and other expenses. Without additional financial support, these public services will be placed under significant strain.
Children’s services were already under financial strain before inflation hit
Children’s services, run by local authorities, have long been under significant cost pressures. Our report in July highlighted how the rising costs of finding homes for children in care have left local authorities less able to pay for the ‘early intervention’ services (such as children’s centres, youth and family support services) that can reduce harm and save money over the long term.
Since 2010-11, spending on ‘early intervention’ services has reduced by 50%. Local authorities in England now spend 80% of their total budgets on ‘late interventions’ where children have already experienced or are at risk of harm.
Three impacts of high inflation on children's services
To estimate the impact of high inflation on children’s services, we use a measure of inflation called the ‘GDP deflator’. This is slightly different to the inflation usually reported on the news. Simply put, the GDP deflator is the change in prices across the whole economy, as opposed to change in prices of things that consumers usually spend money on.
The GDP deflator is a better, but not perfect, estimate of the price rises that governments face. Combining forecasts from the government and the Bank of England, we estimate that this type of inflation will be 5.6% for the 2022-23 financial year.
This level of inflation in significantly higher than average and will have three important impacts on children’s services this year.
The technical bit: how we estimate inflation and expenditure
To estimate what the GDP deflator will be for the 2022-23 financial year, we use the implied relationship between the GDP deflator and the Consumer Price Index (CPI) modelled by the Office for Budget Responsibility (OBR) in March 2022. Because consumer inflation has been higher than expected in the period since this forecast was made, it is necessary to update the OBR’s CPI forecast from March with real inflation for the first half of the financial year, and forecasts from the Bank of England in August 2022 which uprate inflation expectations for Quarters 3 and 4. This gives us an overall estimate of annualised CPI at 11.2% for the 2022-23 financial year. To convert this to an estimate for the GDP deflator, we use the CPI:Deflator ratio of 2:1 implicit in the the OBR’s March 2022 model, leaving an estimate of 5.6% for the inflation facing public services.
To estimate spend on children’s services for this financial year, we use planned expenditure data submitted by local authorities to the Department for Education. These budgets will likely underestimate actual spending. Historically, local authorities have overspent their children’s services budgets by an average of 12.5% per annum, mostly driven by the rising costs of residential care. As the actual level of spending this year is difficult to predict, and 2021-22 actual expenditure data is not yet available, our analysis focuses on planned, rather than actual expenditures.
Rising prices will leave children’s services £344 million worse off than they would be under normal levels of inflation
Local authorities in England plan to spend an additional £700 million on children’s services in 2022-23, as compared to the previous financial year’s budget. In cash terms, this is equivalent to 7.3% rise in expenditure, from £9.56 billion to £10.26 billion per annum. However, due to abnormally high inflation, this is only equivalent to a 1.6% rise in ‘real terms’.
Normally, prices across the economy are expected to rise by 2% every year. Compared to an alternative scenario where inflation is at this normal level, local authority children’s services will be £344 million worse off this year.
Early intervention services are projected to be cut by a further 2% in real terms, despite cash increases
The October 2021 Spending Review announced additional funding for a wide range of early intervention children’s services, including an uplift in funding for the flagship ‘Supporting Families’ programme. This is reflected in an uptick of £63 million in local authorities’ planned expenditure on early intervention children’s services for this financial year.
However, high inflation means that despite this cash injection, local authorities are still budgeting for real terms cuts of 2% to early intervention children’s services, which have already been cut by £1.9bn in annual spending since 2010-11. Compared to the alternative 2% inflation scenario, local authority early intervention services are £62.8 million worse off this year, due to high inflation.
High inflation could leave 23,200 children without support this year
With prices rising, local authorities will be face with a stark choice: cut back on services, or risk overspending and falling into debt. To illustrate the impact that cutting services could have, we look closer at ‘family support’ expenditure, which accounts for £1.1 billion (59%) of the £1.9 billion planned expenditure on early intervention in 2022-23.
2016 government estimates place the unit cost of providing support to a family in the ‘Supporting Families’ programme at £3300. Adjusting this for inflation, we assume that this cost has risen to £4000 per family. If public sector prices instead rose this year at 2% instead of the 5.6% assumed here, local authorities would have the equivalent of an extra £37.12 million to spend on family support, which could pay for intensive family support for 9280 families, or approximately 23,200 children.
The Government should invest to save
Ahead of the Chancellor’s Autumn statement, the message is clear: for children’s services funding, standing still is going backwards.
As was highlighted by the Independent Review of Children’s Social Care, the social care system in England needs substantially more funding to move towards a culture of early intervention and preventative support that can prevent harm and save money in the long run.
High inflation only makes these cost pressures more acute, and without more financial support over the coming years, local authorities are likely to remain trapped in a cycle of spiralling costs, incentivising further cuts to the vital preventative services that children and families most need.