Local authorities up and down the country should be finalising budgets that offer a clear route to the future. That would be the case, argues Richard Harbord, if it wasn’t for the uncertainty affecting the business rates multiplier, children’s services, questions over the public sector pay cap and host of other issues laying siege to council finances.
Local authorities are at a stage when budgets are well in progress and the finances for the next year, and future years, ought to be forming a clear strategic process. Except that the uncertainty surrounding local government finances has reached even higher levels than could be imagined.
Considering that councils still run some of the most important local services aimed at holding society together, they sadly seem to have very few friends in high places.
Indeed, even promised action rarely appears to materialise. A recent report indicates that the cost of residential care has reached record levels and increases far outstrip the increase in pay and pensions and yet we still await a strategic and long-term response to social care funding. A Green Paper was promised for shortly after the general election. The paper has, however, been postponed because of the need to bring forward proposals acceptable to a majority in Parliament. Now rumoured for the rapidly approaching year end, little has been revealed.
Perhaps there will be a raft of proposals in next week’s budget? Pundits, however, veer towards the pessimistic and generally think the scope for any good news is severely limited.
Other massive areas of uncertainty include the public sector pay cap. Generally understood to be on its way out, there is also a feeling that an overall pay cap may remain, though the lower paid will get a higher increase while pay for those at the top will be frozen.
Sums
More chilly news elsewhere. The rumour is that in order to help business the chancellor will freeze the business rate multiplier. Has anyone in central government done the sums to show the effect of that on local government finances and where the shortfall will be made up? Most authorities will have assumed in their long-term planning that there would be an inflationary increase.
On top of that the whole business of business rate appeals is problematic. The new system means that there is no appeal until the “check” and “challenge” stages are through. No one really knows, therefore, what the potential loss or gain to a local authority could be. The headline is that appeals are down in number. They will be, but this is a meaningless statistic because difficulties with the website and understanding the new system has meant that the first stages are still in progress in most cases. In addition, DCLG has just confirmed it will not be imposing a time limit on making appeals. This is a time bomb which will affect future years, though the effects will probably not be felt in 2018/19.
Slow down
There is also now uncertainty over investment in commercial property in which around £2.8bn has been invested. There is now a consultation paper on the prudential framework for capital investment, so expect investment rates to slow until any change is finalised.
Inflation has risen although this month’s figures show a levelling out. In the past inflation has affected local authorities at higher levels than the index and this will put an additional pressure on finances, which is difficult to quantify. The recent increase in interest rates will do little to help local authority income.
Local authorities face a greater scrutiny in putting together lawful budgets. A vital part of these is that provisions and reserves are carefully calculated and properly allowed. In recent years there has been some temptation to ignore the full extent of necessary provisions, such as business rate appeals, as this increases the pressure on making savings.
That is, of course, another uncertainty. Can local authorities, amidst all this, still reach ambitious savings targets? Elected members in many areas face elections next May and that is likely to make the final resolution of budgets tricky. Unrealistic savings targets are part and parcel of unlawful budgeting but the pressures on section 151 officers are considerable.
Then there are issues that seem to fly under the radar. Though much is made of the pressures on the adult social care budget, there will be few local authorities who avoid overspending on children’s services this year. This gets little mention but reputational risk for local authorities in getting this wrong is very high.
As the current year has progressed it has become more and more obvious how many authorities are approaching substantial financial difficulties. I fear that unless there is some, as yet unseen, assistance from central government the next financial year will see that trend increasing.
I have not mentioned the problems of Brexit for local authorities both in development funds and staffing. I hear there is some good news that certain European initiatives will still be accessible to UK partners even after Brexit but we shall have to wait and see how far that goes.
Nobody should be in any doubt as to how much local authorities depend on their very professional section 151 officers to see them safely through these difficult times.
Richard Harbord is a former chief executive of Boston council.
