11 February 2005
Paul Boateng has given the green light to development work on a cost index that would accurately reflect the financial pressures faced by local authorities, Public Finance has learned.
The chief secretary to the Treasury, who oversees public expenditure, has agreed to an initial work programme after intensive lobbying from local government leaders.
The reintroduction of a cost index, scrapped by the last Conservative government, could have far-reaching consequences for local government funding. The Treasury would be hard-pressed to offer settlements that failed to meet demonstrated costs.
LGA chair Sir Sandy Bruce-Lockhart told PF that a mechanism was urgently needed to measure the impact of financial pressures facing councils. 'What the LGA wants to see is an agreement between local government, the Office of the Deputy Prime Minister and the Treasury about what these cost pressures are and the action that can be taken to bear down on them,' he said.
Officials from the Office of the Deputy Prime Minister and the Local Government Association met for the first time recently to consider how the research will be funded and which organisation will carry it out.
The project will focus on identifying the main inflationary pressures on town hall budgets and consider ways of measuring them. The LGA has long argued that an index is needed, pointing out that in January 2004 the Office for National Statistics put public sector inflation at 8%, which far outstripped the figure for the whole economy.
Council leaders complain that their budgets are being drained by demands, such as the school workforce reforms and pension scheme contributions, that are inadequately reflected in grant settlements.
They also want the financial impact of legislation to be more rigorously assessed, such as the Care Standards Act 2000, which resulted in authorities paying higher fees to private providers.
'It is absolutely essential that we have a proper understanding of these issues before we move to a system of three-year budgets,' Bruce-Lockhart said.
Boateng gave his backing to the development work during meetings with town hall leaders in the run-up to November's Pre-Budget report, which gave councils a £1bn cash injection to keep council taxes down.
Senior local government figures believe a cost index could improve the stability of the finance regime. They hope that any such mechanism would be in place in time for the 2006 Spending Review.
But a Treasury spokeswoman would not be drawn on the issue, telling PF: 'We would not want to pre-empt the findings of the project.'
An ODPM spokeswoman would only say: 'We can confirm that the ODPM did meet with the LGA to discuss the interest in developing a cost index. But the ODPM has made no commitment at this time.'
PFfeb2005
