The article last week on Room 151 by Chris Game of INLOGOV about Section 24 authorities is a gripping one. I have been most interested in the last 12 months about what would actually happen if a local authority ran out of funds to continue. As with all matters in local government finance, it is not straightforward at all.
The one thing I suspect that no one should count on is that a local authority in trouble will receive a sympathetic hearing from DCLG. The chances of working capital to tide them over might be beyond the reach of anyone’s wildest dreams.
It should be remembered that during the interest rate swap saga of the 1980s the Treasury was adamant that it was not able to help. In one of the other banking crises, I remember a local authority was given some short-term assistance which the council tax payers had to repay over the next few years.
Balanced
The assumption is that as we are making lawful balanced budgets and there should never be a problem. But there clearly is. It has recently been put to me that there may be as many as 35 local authorities who are currently in real financial difficulties and, as we saw last week, these are far from being small district councils.
In addition to the publicity surrounding Birmingham, Bristol has featured in reports over a failure to properly monitor savings programmes leading to a budget deficit of £30m.
Steve Bundred, a former chief executive of the Audit Commission who carried out the investigation, said: “It would be wholly wrong for any individual to be singled out for censure … because I am in no doubt that the sequence of events described in this report represents a serious collective failure of leadership within the council for which several people, including politicians must take responsibility.”
However, he added: “Over a sustained period of time officers did not display the degree of professionalism the mayor and councillors were entitled to expect.”
This is strong stuff and very sad to read. But it shows that even where balanced budgets have been made, they are live and need to be reviewed continually to ensure that all savings are achieved, costs are contained and all income collected.
Havoc
Everybody knows that lump-sum, non-specified savings do not make a legal budget but it is much more difficult when savings have a business case to ensure that they are fully delivered in a timely fashion.
Budget deficits can also occur, of course, where insufficient provision has been made for things which may or may not happen. I am thinking particularly of business rate appeals here, which unless closely monitored could cause havoc with financial plans.
It is interesting that we were all amused a few years back by the Barnet Graph of Doom showing that eventually local authorities would only be able to afford statutory services. It does not seem so far fetched now.
Indeed, the problem is, as Chris Game says, unlikely to be bankruptcy, as such, that finishes off an authority but a challenge in the courts on the adequacy of provision, perhaps under the Care Act. Such an action lost in the courts would be extremely damaging and have serious consequences for all.
There are lots of dynamics about the current financial situation including the fact that elected members do not see that they were elected just to provide statutory services for a relatively small proportion of their community.
Perhaps I am alone in feeling that ministers do not have sufficient understanding of the problems facing local authorities and are somehow insulated from the fall out. The debate on social care and the “solution” of the care precept clearly demonstrates that. Also, at a time when there would appear to be much evidence for the need for robust safeguarding services, the resources to provide it are not there.
I regret that there will be many more stories like Bristol and Birmingham before the year is out.
Richard Harbord is the former chief executive of Boston Borough Council.
