Social spending rose despite overall drop in subnational budgets

The Council of European Municipalities and Regions (CEMR) and Dexia Crédit Local have published a review of subnational public expenditure. Current social spending1 by local and regional government grew less fast in 2011 (+1.2%) than earlier in the crisis (+7% in 2009). The rising or falling unemployment rate is believed to be one factor: entitlement to unemployment, housing and health benefits rises with the number of people out of work, as does spending on various supportive ‘active inclusion’-style services.

The transfer of social competences to municipalities, notably in France, Greece, Lithuania and the Netherlands, is another factor. Meanwhile in Portugal, local spending rose by 11.2% because municipalities found themselves compelled to provide emergency welfare to citizens despite an absence of formal competence.

“While cash benefits and emergency support can help households to get through tough times, we also need to invest in the future by offering people other forms of support and advice (‘accompagnement’) that allow them to become self-sufficient (again)”, commented ESN’s policy director, Stephen Barnett.

Overall subnational spending in fact shrank by 0.2% in 2011 compared to 2010 (-1% at the local level), valued at 16.7% of GDP and 34% of overall public spending The CEMR/Dexia analysis identifies several areas of reduced subnational expenditure:

  • Less money was spent on optional competencies
  • A rising trend to outsource public services or to privatise them altogether
  • A fall of 0.9% in staff costs owing salary decreases and redundancies
  • Efforts to make efficiency savings, e.g. through shared services

Taking a long-term view, decentralisation, rising social needs and higher quality standards were found to have contributed to the rise in subnational spending on social services and benefits from 14.2% of total budget in 2000 to 16.9% in 2011. “Catch-up effects” in Central and Eastern Europe and the ageing population are also thought to be factors.

ESN’s Chief Executive John Halloran commented: “Being close to citizens, municipalities are well-placed to take on more social competencies, but they need a corresponding transfer of resources to be able to do that job well.” However, he also recognised that “we need to get better at directing money to practices that work and to showing the economic as well as the social value of what we do.”

For Frédéric Vallier, Secretary-General of CEMR and André Boulanger, Director of Research at Dexia Crédit Local, “the crisis is an opportunity to redefine the role and the governance of the public sector across the central, regional and local levels.”

Access the full report (aussi en français) via CEMR website

1Social protection spending in this context refers to benefits and services in the areas of disability, sickness/health care, old age, survivors, family/children, unemployment, housing and social exclusion. This category excludes education and health except support to poor households. See more.