Magazine article Public Finance

The Truth Will Out

Magazine article Public Finance

The Truth Will Out

Article excerpt

Betraying their unease on the subject of local government finance, the spin doctors in Whitehall decided to include the settlement for 2006/07 on the same day as the chancellor's Pre-Budget Report. The talk of the day, as expected, centred on overoptimistic macroeconomic estimates and climbdowns from the Treasury, leaving local government to leave silently through the back door.

However, such a stinging issue for the government cannot be so simply ignored. The Pre-Budget Report and the settlement have thrown up some real issues that the government will have to tackle.

First, the chancellor only plugged some of the gap in a two-year deal to fund local government - way short of the Local Government Association's estimated funding gap of £2.2bn for 2006/07 alone. On a yearly basis, this is only just over a quarter of what was received in last year's bail-out and undermined the chancellor's claim that the Pre-Budget Report reinforces the government's commitment to 'families, the elderly and young people'.

The fact is that frontline services do not come cheap and, with the challenges of changed demographics, are likely to become increasingly costly. For example, the LGA estimates that almost £700m more is needed for services to adults, largely because of the ageing population.

Key areas such as social services will be particularly affected by the chancellor's statement, although the Commission for Social Care Inspection has said that there will need to be a 'significant increase' in budgets to meet demand. The government's 2% increase for social services falls way short of the mark.

Year on year, the Office of the Deputy Prime Minister will be forced to take off its cap and go begging around Whitehall unless the current structure of local government finance is reformed. Prior to the settlement, the Local Government Information Unit proposed that an 'opt out' clause should be introduced, which would allow overstretched councils to argue about undertaking new Whitehall-led initiatives deemed unsustainable within the current funding structures.

However, this is only a short-term measure and more far-reaching reform is needed if finances are once again to be sustainable. Additional council tax bands need to be introduced so that those in the top band pay ten times as much as those on the bottom band, instead of three times as much as at present.

Also, replacing the national banding system with regional ones to reflect the wide variations in property prices and housing market inflation over the past decade is a must. …

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