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By Lord Beecham - 9th March 2011
Local councils of all political colours are facing a triple whammy as they set their budgets for 2011-12, says Lord Beecham.
Not only do they have to contend with the largest cuts in government support for generations, offered up to the Treasury (no doubt to its surprise and delight) by the secretary of state, but these cuts are themselves heavily front-loaded.
Furthermore they will, of necessity, involve job losses and redundancies, which themselves have to be financed, adding to the financial targets to be met.
And finally the government has only partly acceded to pressure from councils to be allowed to meet those costs by "capitalising" them, that's to say using receipts from asset disposals, or through borrowing and in this way spreading the cost over time and minimising further cuts in services and jobs.
The Local Government Association(LGA) estimates around 140,000 posts will be cut, and while it's not yet clear how much will be needed to pay for redundancy and severance costs, it seems likely that the total will be up to around two and a half to three times the £300m amount the government has announced it will authorise to be capitalised.
Last year, when the pressure on budgets was nothing like as great, councils applied for permission to capitalise almost as much as the government has now announced in much more straitened times.
It's all made more difficult for councils by the fact that they won't know how much they'll be allowed to cover in this way until July. Lib Dem controlled Sheffield, for example have to find £15m and, and have set aside £8m from a contingency reserve.
To the extent that they are not allowed to capitalise the remainder they'll have to make further cuts of £7m, in turn generating still more job loss and redundancy payments.
Capitalisation "does not in itself increase public expenditure", as acknowledged in a Departmental Guidance Note in 2004, and if the government were taking localism seriously they would allow councils to deal with the problem in whatever way was most suitable, including a mix of revenue and capital.
The figures ministers quote for council reserves ignores the fact that such reserves include amounts held as working capital and prudent contingency provision, or sums earmarked for particular programmes which would have to be cut if the reserves were applied elsewhere.
The government needs to free up councils to deal with the critical situation they face, and to consult with the LGA as part of the local government finance review about how to deal with this issue in the future.
The former leader of Newcastle City Council, Jeremy Beecham was raised to the peerage in 2010 representing the Labour party.
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