Nov 2011 18

Most councils are coping well with current level of cuts but the future could be challenging, according to findings of a new Audit Commission report. It says well-managed councils are weathering the current economic storm far better than others. They claim:

“big expenditure cuts are always hard but auditors feel that well-managed councils can deliver their 2011-12 budgets. Facing big cuts is not, on its own, enough to worry auditors. It is councils with big cuts and weak management that are at higher risk of not achieving their budget. Good financial management is helping most councils cope in 2011-12.”

The report explains three ways councils can help plug the financial gap. They can either raise charges and/or council tax, dip into reserves or make reductions in spending.

Many families are struggling, making savings to household budgets and coping with increasing fuel and energy bills. That means raising council tax or charges is unacceptable. It’s a lazy option.

At the start of the 2011-12 financial year, councils held £11.8 billion in reserves. This was equivalent to 30 per cent of total revenue spending in 2010-11. According to the report single tier and county councils held unallocated reserves equivalent to two-thirds of their central government reduction in funds, and district councils around twice the value. If earmarked reserves are included in this figure then the picture is markedly different: district councils reserves are then six times the value of their cuts and single tier and county councils nearly three times.

But when it comes to using reserves, Sir Merrick Cockell, Chair of the Local Government Association makes a strong point: that councils should only consider dipping into their reserves in extreme measures and only for use in the immediate term.

The final way of making up the shortfall – cuts to spending – is something the Audit Commission says is essential. Once falls in income and reserves are taken into account there is a net gap of 7 per cent in total income available to fund services for single tier and county councils and 8 per cent for district councils. But those figures relate to existing services. Councils must consider the difficult but necessary options of scrapping services or departments that are not a priority, or can be performed by someone else.

Besides, the report states that there was no identifiable link between the extent of impact on services and the size of cuts. It is something that is more affected by local decision making and individual council priorities, meaning many councils’ excuses don’t stand up to scrutiny.

Much of this report confirms what the TPA has been claiming for some time – that spending cuts are achievable through good management and the willingness to make difficult decisions. Councils should look through our research archive for suggestions on what to cut. Harry Phibbs’ list of 100 ways to cut council tax without cutting key services also has some excellent suggestions.

Chris is a Policy Analyst at the TaxPayers’ Alliance, focussing on local government spending. His work in this area includes papers on trade union funding and our Town Hall Rich List.

  • Blarg1987

    It will be interesting to see the long term financial cost of some cuts.

    As an example most councils have cut their youth funding (due to those being affected being to young  to vote or not intersted in politics). Now yes this is a short term saving, but long term how much more may it cost should anti socicial behaviour increase and more resources would be required to combat this rise? I accept councils have to be more efficent etc, but also should we look at increasing revenue if we are going to be saving pennies short term but costing pounds long term?

    It will be very hard though to work out the financial cost though so I would like the TPA to see in the next few years if additional money has gone to fight anti social behavour compared to the reduction in youth funding etc.