By David Williams
28 January 2011
Thousands more jobs and millions of pounds’ worth of services are at risk unless the government allows more redundancy costs to be met from capital resources, councils warned today.
Currently, local government is limited to using £200m of capital funds on redundancy costs. The Local Government Association says this amounts to less than 1% of the local government pay bill and is far exceeded by the estimated redundancy costs of the eight largest cities outside London – who between them need to cut 10,000 posts at a cost of £317m.
Yesterday, Liverpool City Council announced that it would be shedding 1,500 jobs and Manchester City Council has said it intends to lose 2,000.
The LGA has warned that 140,000 local authority posts will be shed in 2011/12. It is now calling on ministers to recognise the extraordinary job losses councils will have to implement in the next financial year, and for the £200m limit to be lifted to give authorities maximum flexibility to meet redundancy costs.
The LGA says the restriction will exacerbate cuts in services resulting from the formula grant cuts imposed by ministers in the 2011/12 local government financial settlement, published late last year. If the capitalisation rules are not relaxed, councils will have to cut more from their 2011/12 revenue spend to pay for the redundancies, eating further into staff numbers and pushing up redundancy costs.
LGA vice-chair David Sparks said that front-loaded cuts made it harder for councils to save money through renegotiating contracts, innovation and joint working.
‘Councils need the flexibility of capitalisation to help restructure their services as quickly and efficiently as possible,’ he said.
‘Councils need to make rapid workforce reductions. Often, the money to fund these one-off reductions can be found only from capital resources.
‘On the one hand, the government is urging councils to dip into their financial reserves to protect services while on the other hand it is preventing them from spending their own money.’
He warned that council taxpayers would not accept this as the best use of their money.
But local government minister Andrew Stunell, writing in advance of full capitalisation guidance to be published next month, yesterday said authorities should not make ‘assumptions’ about whether they would receive capitalisation directions. He said the government would take into account a council’s levels of reserves in informing their decision.
‘[Capitalisation] directions cannot meet all of these costs, and it will be for authorities to assess how they best manage costs overall from their own resources, including, as appropriate, from reserves,’ Stunell said.
