Councils face tight financial settlement next year

27 Oct 05
Councils could be forced to delve into billions of pounds of vital cash reserves following a tough 2006/07 finance settlement, ministers have warned town hall officials.

28 October 2005

Councils could be forced to delve into billions of pounds of vital cash reserves following a tough 2006/07 finance settlement, ministers have warned town hall officials.

The stark warning was made public this week by Sarah Wood, the Local Government Association's head of policy, who has held talks with departmental ministers and permanent secretaries ahead of the LGA's annual finance submission next week.

She told Public Finance that ministers have made it clear that a combination of declining public sector investment, the re-emergence of council tax caps, increased ring-fenced cash for services such as education and the continued search for efficiencies means that the 2006/07 settlement will be the tightest for years.

 'We're in a difficult position,' Wood told an audience of finance professionals at a CIPFA seminar on October 26.

'We have been told by [Chief Secretary to the Treasury] Des Browne that, unlike last year, there will be no one-off funding package. There is significant “grant turbulence” caused by a dedicated schools grant, grant formula changes and some cuts and withdrawals of grants for 2006/07.

'Additionally, we have new burdens from the current efficiency drive, pay considerations, licensing and pensions costs, while ministers don't seem to recognise the spending pressures in highways and children's services.'

Despite those pressures, the Office of the Deputy Prime Minister has indicated it will raise its grant to councils by just 1.5% for 2006/07. Wood warned: 'There's a growing interest at the Treasury and ODPM about the use of reserves.'

Figures from 2003/04 showed that town halls in England and Wales are holding on to around £2.25bn in 'un-earmarked' cash. Audit Scotland recently revealed that authorities north of the border were sitting on total reserves of £1bn.

Finance directors claim that such levels are necessary to cover future emergency or unplanned spending.

PFoct2005

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