Even England’s Richest Region Is Struggling to Make Ends Meet

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(Bloomberg) -- It doesn’t take long to come across money in the richest corner of Britain. Mansions costing as much as $20 million sit back from leafy streets in quaint villages and towns where actors and sports stars live alongside bankers. And that’s on the land that isn’t devoted to golf.

The scene of prosperity ordinarily would show how well things are looking. But the county of Surrey, an hour by car southwest of London and the biggest contributor of tax revenue in the U.K. outside the capital, is a region that's struggling to balance the books and exposing its more vulnerable side.

Financially light-years away from the poorer post-industrial north, Surrey is still battling the impact of almost a decade of government spending cuts. What started as administrative savings and reducing printing costs has moved to funding for disabled adults and children with learning difficulties.

“There's a real perception that ‘why would we help Surrey because surely everyone is a stockbroker or working in a bank and is fine,’ but no,” Lorraine Buchanan, who runs the branch of the Citizens Advice Bureau charity in the town of Woking, said from her office around the corner from a food bank and a Cote Brasserie French bistro. “We have pockets of extreme wealth, but five minutes from here is a lot of social housing.”

The legacy of the global financial crisis runs deep in a country still saddled with the cost of bailing out its banks. It led to the disillusionment that produced the Brexit vote to leave the European Union and a backlash against austerity at last year’s election.

For all the recent talk of pay increases, the lowest unemployment since 1975 and a recovery complete enough for the Bank of England to have started raising interest rates, a malaise remains and there are likely to be more political twists and headaches for central bankers.

Municipalities in the U.K. get a subsidy from the government to cover more than half their spending, with the rest of their budget coming from a mix of charges and taxes on homes and businesses.

After Britain played its part in the financial crisis with the collapse of some of its biggest banks, the newly elected government in 2010 took the ax to public spending to reduce the national debt. It also froze household council tax for five years and put a cap on increases.

As the national finances appear to be turning a corner, councils up and down the country face a spending cliff edge just as many hold elections this week.

With government legislation on their funding stuck in the pipeline, they have no idea how they will pay for themselves after 2020. It might not be the hardship of Greece, yet combined with a growing squeeze on resources it means services from street lighting to trash collection are being stripped back in the world's fifth-biggest economy.

Gross weekly pay in Surrey is more than a fifth higher than the rest of the U.K. Its demographics, though, are less favorable. The strain on public services is huge because of an aging population and the largest cohort of adults with disabilities in the country, partly a legacy of building psychiatric hospitals in the 19th century for patients spilling over from London.

Demand in Surrey for learning disability services rose by 46 percent in the last eight years and the number of older people supported rose by 9 percent. Surrey reduced its adult social care budget by 234 million pounds over the same period and the council has to find about 18 million pounds of savings this year.

At the other end of the age spectrum, the council is looking at closing some of the area’s 58 Sure Start Children’s Centers, which provide hubs for parents of young children. The goal there is to shave more than 25 million pounds from the children, schools and families budget this year. Children with special educational needs and disabilities are facing a cut in their budget of 21 million pounds this year.

One parent, Melanie French, filed a lawsuit against the council after it proposed that her 15-year-old daughter with autism, attention deficit disorder and obsessive-compulsive disorder transfer to a mainstream college next academic year. She’s been at a specialist school and the council says it can no longer provide that same level of support.

“She has hyper sensitivity towards things like noise, so it would be the equivalent of studying for five years in a disco or in a nightclub,” said French, 52, a retired police office in the town of Banstead. “If Surrey hadn’t mismanaged their budget, they could have money to spend on this. They’re in a desperate mess, and the result is, they’ve cut everything.”

A stronghold of Prime Minister Theresa May's Conservatives where more land is covered in golf courses than homes, Surrey faces a shortfall of 86 million pounds even after approving spending cuts of 66 million pounds this financial year. That’s in addition to increasing its council tax rate by the maximum 5.99 percent allowed by the government in London.

Some local politicians said the council is in a perilous financial position. Another county run by the governing party -- Northamptonshire in central England -- was effectively declared bankrupt in February.

“Eventually the books just won’t balance,” said Surrey Councilor Nick Harrison, who leads the Residents’ Association and Independent Party, the main opposition to the Conservatives in the council. “We have to go to the well one more time and it’s tremendously difficult to keep making the savings.”

Council Leader David Hodge has compared the county to “Rome burning,” though said there is “absolutely no” way it will follow Northamptonshire because of its decision to raise taxes.

The steward of Britain’s finances as it negotiates Brexit, Chancellor of the Exchequer Philip Hammond, lives in Surrey and acknowledged that councils are so squeezed they’re now spending all their money trying to fund social care and are struggling to provide much else.

Hammond urged local authorities to dig into their reserves that are usually used for emergencies like flooding. Yet depleted reserves are a key sign of severe financial distress, according to the Bureau of Investigative Journalism, an independent group founded in 2010. It identified Surrey as among five councils that could be about to follow in the footsteps of Northamptonshire.

Last week, Hammond suggested that councils may get some respite in a spending review next year, yet he also called for much deeper reforms to the way the country funds social care.

“There are some difficult questions about how we fund an aging population that will continue to be a source of pressure on local authority budgets for the foreseeable future,” he said. “As a society we have to decide how best to respond to that.”

©2018 Bloomberg L.P.

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