News Analysis: Oldham faces up to cost cuts and job losses

9 Oct 08

10 October 2008

As the economy falters, a chill wind is blowing through town halls across the country. Inflation and fuel price rises in particular have councillors nervously eyeing next year's budgets.

But in Oldham, the crisis looks especially severe: last month, the council's Liberal Democrat administration sent shockwaves through the town after warning the unions of up to 850 redundancies as it seeks to plug a £17.3m hole in its 2009/10 budget. Oldham's Unison branch secretary Ann Mitchell says: 'We're extremely concerned at the effect on our members losing their livelihoods but also on the local economy – it's a fifth of the council workforce outside schools.'

The council has also been hit by a critical report from the district auditor, highlighting 'a significant number of material and non-trivial errors' in its financial statements. An appendix lists more than £400m of adjusted misstatements, including £90m not taken out when assets were transferred to a Private Finance Initiative provider.

Things are not looking too cheerful in the town where the LibDems took over from Labour in May, and both chief executive Andrew Kilburn and finance and IT director John Bland left for new jobs last week. Oldham has not faced such a crisis since Asian youths rioted in the town amid agitation by the British National Party and National Front in 2001.

In the local press, council leader Howard Sykes blamed inflation and higher energy costs alongside the cost of investment in services for the budget gap. 'Like every family in Oldham,' he said, 'the council has to live within its means.' Labour councillors branded the budget figures 'an absolute disgrace' and accused the new LibDem administration of increasing the gap by around £3m.

But Oldham's unions say the cuts are nothing new. 'As far back as I can remember – and I've worked for Oldham for 16 years – the council has had trouble at this time of year with balancing the budget,' Mitchell says.

GMB convenor Jim McDermott agrees there have been problems for 'at least ten years'. He says: 'The way they explain it is as if it's just crept up. But every year, it's cuts, cuts, cuts.' He adds: 'The big problem in Oldham is the politicians aren't running the shop – it's the senior management team. They're not prepared to give on the budget.'

Managers have either delivered up soft options for cuts that will not fill the budget gap or suggested such dramatic cuts that councillors will not accept them for fear of a voter backlash. Meanwhile, there are large numbers of vacant posts and excessive use of interim managers, consultants and expensive agency staff, he says.

Papers for the council's Cabinet meeting of September 29 certainly suggest that the council has been struggling to get a grip. The budget report describes a 'critical review' by the council leader, Cabinet member for finance and resources, chief executive, executive director for strategy and resources and director of finance.

'This process was designed to challenge proposals which should have come forward to meet the targets,' it says. 'Unfortunately, the process did not work as well as expected, and thus these “star chamber” sessions usually involved requests for further analysis and consideration of potential further options.'

Lynne Thompson, Cabinet member for finance and resources, agrees there have been problems trying to close the gap. 'Some managers are grasping the nettle a great deal more effectively than others,' she tells Public Finance.

Her administration will put its 'hands up' to adding to the deficit – 'There are always new pressures' – but she points out: 'We had a £14m-plus deficit last year.' Part of the problem, she argues, is that about 30% of the savings made to balance the budget then were one-off options, 'so we've got all that again'. The incoming LibDems also felt that 'a considerable proportion of savings [agreed in] the February budget were not achievable'.

But Thompson also points to difficulties that stretch back some years. 'We've issued a section 118 [redundancy] notice every year as a matter of course and that's got to stop. We need stability,' she says.

'The real biggie is that we're overstaffed... a good 15% more than in comparable authorities. I'm not saying the staff don't work hard – but we can't afford them.' This is something that previous administrations had not tackled. Other long-term difficulties lie behind the poor audit report, Thompson argues.

The major problem was that Oldham was using a 20-year-old accounting system that is now obsolete and unsupported by its manufacturer. The accounting errors 'did not affect the bottom line' and have not contributed to the budget crisis, she emphasises.

Oldham has also suffered from its key role in supporting the Greater Manchester Waste Disposal Authority. Council finance director John Bland had also been the GMWDA's treasurer – dealing with the little matter of its £3bn, 25-year Private Finance Initiative waste disposal contract. 'He's been trying to do two very big jobs. It's no reflection on him, but it hasn't worked,' Thompson says.

Bland, who has moved to a new full-time position as treasurer and deputy clerk at the GMWDA, says the council had had to restate its accounts in line with new requirements with little time to spare. There was 'some valid criticism', which Oldham accepted, but the audit report notes substantial improvements on the previous year, he says. Bland also introduced a new finance IT system before his job switch – a move that will bear fruit with greater efficiencies in future.

He adds robustly: 'I'm not going to claim that it's the best financially managed council in the land, but we have been able to deliver balanced budgets.' The projected budget gap for 2010/11 is only £3.5m – well within the scope of efficiency savings, he says.

Oldham's position is not a complete mess, Bland argues. 'But I think it's a council that needs to take some clear decisions about its priorities and what it needs to do.'

This is a view that local politicians from the LibDem and Labour camps now seem to share. Jim McMahon was elected Labour group leader in May. He admits that the council probably is overstaffed, although he argues for a two or three-year restructuring programme that improves the way the council works.

But he also lists factors that together produced the budget gap of £14m foreseen a year ago: the costs of implementing equal pay for the council's workforce, a huge school-building programme and a new street-lighting contract all bumped up the bill, along with inflation, he says.

McMahon concedes that councillors might have been overambitious. 'We tried to apologise to people for spending, but at the same time promised things. We tried to do too much. That's something we will acknowledge and we will work with the new administration to reduce the number of priorities and to do those things well.'

Thompson welcomes this 'olive branch' from Labour and wants to put aside 'the political Punch and Judy' over the cuts. But for Oldham's workforce and its wider population, this new unity of purpose holds little comfort. The Cabinet's September meeting discussed savings worth £8.3m, with around 120 job cuts. That accounts for less than half the budget gap. Unison's Ann Mitchell says: 'The worst is yet to come.'


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