Lost in space

11 Nov 05
PHILIP JOHNSTON | It is ‘black hole’ time again.

It is ‘black hole’ time again.

Each year, just as the first Christmas decorations are appearing in the shops, local government chiefs issue dire warnings that without a much bigger injection of cash from Whitehall, council taxes will soar the following spring.

The intention is to place maximum pressure on the chancellor as he completes his preparations for the Pre-Budget Report and recalibrates the public finances.

For the past two years, Gordon Brown has found an additional £1.4bn to ease the pressures on local budgets. The political imperative for those decisions was pretty clear: a general election was in the offing and the prospect of the government taking the blame for big tax rises had to be addressed. Last year’s near £1bn extra funding kept tax rises to around 5%, still well above inflation but politically containable given the double-digit increases of a few years ago.

This year, as the Local Government Association warns of a £2.2bn ‘black hole’ — equivalent to a 10% local tax rise — Brown is again scouring Whitehall in the hunt for cash to fill it. The problem with black holes, of course, is that nothing emerges from them, not even light. Some scientists doubt whether they even exist. Departmental ministers who are being asked to look at their balance sheets to see whether money can be released for a more generous local government settlement are entitled to ask some searching questions about why the money is needed.

The LGA, in a submission to the Treasury, makes a powerful case. It says that since the government is instructing town halls to absorb the costs of central decisions over which they have no control, then it should provide the funding.

The rising costs of legislative and policy demands, as well as demographic trends, have left a potential shortfall of £663m for elderly and adult services, £599m for children’s services, £632m for waste management and street cleansing, £669m for antisocial behaviour, housing and pensions and £292m for transport, the association argues. Sir Sandy Bruce-Lockhart, the LGA chair, said: ‘The proposed increase in government grant of £300m is not even enough to cover basic inflation.’

The local authorities maintain they are doing everything they can to manage the pressures they face by making efficiency savings and managing costs. But are they doing enough? A timely report from the Audit Commission this week suggests not. It found that not only were councils able to meet the annual efficiency targets set by Whitehall for the three years to 2008 but that there was potential to double the savings in the administration of some services through innovative schemes and the adoption of best practice.

To avoid a political backlash at the council elections next spring, Brown is likely to stump up some extra cash, though nothing like enough to fill the black hole. But his largesse will be accompanied by pressure for even greater efficiency savings.

Local government chiefs will doubtless tell Whitehall that they are in the van on this: figures from the Office of the Deputy Prime Minister issued over the summer showed that councils in 2004/05 were more successful than any other part of the public sector in cutting costs. Their success was acknowledged by Phil Woolas, the local government minister, just a few weeks ago.

Official figures suggest that around £700m worth of efficiency gains have been achieved already, and councils expect a further £1.2bn in 2005/06. However, Woolas made clear that the second wave of efficiencies had to be ‘on a different scale’. He added: ‘Councils need to change the culture from one of looking to improve the status quo to one of radically rethinking the whole approach.’

The Audit Commission suggested that these should include sharing services or procurement between authorities and developing strategic partnerships that deliver practical results. Localists are suspicious of the idea of big-scale procurement and think it would make more sense to buy locally because the money then circulates in the local economy providing both jobs and cash for regeneration.

However, this is not just an argument about efficiency savings but about the way local government is financed, decisions on which have been delayed yet again following the postponement of revaluation and the extension of Sir Michael Lyons’ committee’s deadline.

Leaving aside the fairness or otherwise of the current system, the fact remains that the black hole problem will continue unless the government does one of two things. Either it funds the spending it demands of councils or reduces the legislative burden by, for instance, taking education spending back into central government. If neither of these happens, council taxes will soar.

The only argument then will be over who is to blame.

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