Local government finance – not sexy, but important

11th February, 2012 12:10 pm

Local government finance is not the sexiest subject in the world, nor will it get many frontpage headlines. It’s not just the pace and scale of the coalition’s cuts which is hitting local government hard. Uncertainty created by a raft of other council finance proposals is causing real difficulty for town halls across the country.

The cuts are savage and deliberately front-loaded, hitting local government disproportionately. Councils with higher levels of need are taking bigger hits, and as town halls set budgets for the coming year the grim reality is becoming very real.

Beyond the cuts, councils with high levels of need will face yet more heavy blows. Housing benefit changes will see thousands of people receiving less money, making the rent they pay unaffordable. Without question this will lead to a housing crisis which local councils, and not Whitehall, will have to deal with.

The government proposes to introduce localised schemes for council tax benefit. This is the true face of their localism agenda; a massive shift of risk and responsibility. Under the government’s plan councils will determine how they distribute council tax benefit. A welcome concession is that pensioners will be protected, but with a proposed reduction in the overall amount coming into councils for council tax benefit, this will inevitably hit those on low incomes of working age; the very people already bearing the brunt of this government’s changes to tax credits as well as rising costs of living.

According to the government, councils need an incentive to attract investment and create jobs. This is the premise of their business rates retention proposal. Local councils will keep the rates they generate in their area. It is impossible to forecast accurately what this means for councils because of a lack of information. What we know is that the principle of funding councils based on social need, via a central pot of business rates income, is erased. Replacing it will be a sink or swim model, pitching areas against each other with the only safeguard that no council will lose out in the scheme’s first year.

The notion that councils need this rates retention motivation to drive local growth is insulting. The need to create jobs in our areas is incentive enough to be serious about economic growth.

The government’s approach fails to recognise the pressures facing councils in this climate. To protect services and do the best for those we represent, councils need to be able to plan ahead. At times it feels that the government’s strategy is designed to create turbulence and risk for councils.

Local councils need stability in their balance sheet forecasts, not a constant tidal wave of uncertainty and risk from Whitehall.

Rory Palmer is the Deputy City Mayor of Leicester

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