Tag Archives: finance

Cynical, irresponsible, gimmicky – take your pick!

On Friday the Tory administration finally published the budget papers for the 2011/12 financial year. The papers claim the reason for the unacceptable delay in publication was late information on government grants. I don’t buy it and have asked the Chief Executive for an explanation. Since Tuesday we were told the papers were coming out the following day. Everything I hear lends me to believe that these were down to the administration – either playing games or struggling to come to a final decision.

Regardless their budget is breathtaking. It slices HUGE chunks of budgets for children’s services and social care. Almost £5.5m from Children’s & Families services, about £6.1m from Adult Social Care as well as smaller but harmful cuts from planning, licensing and central services including, for example, health & safety support work. Additionally the Tories propose to spend £1.1m capital funds removing cycle lanes from Grand Avenue & The Drove. Yes, that’s right, removing cycle lanes. They also wish to borrow just over £4.5m to refurbish car parks.

This is the year of the biggest cut in our central government grant, the cuts were front-loaded, so you’d think they’d hang onto every penny. But no, in a cynical gimmick to cling to power, the Tories propose a 1% cut in council tax plus a 5% reduction in resident parking permit costs. This is utterly irresponsible – and as there are waiting lists for residents parking permits this will hardly help manage that demand.

If one uses the admittedly imperfect analogy of a household income… Then this is like a family member getting a pay cut, and knowing more cuts are due in the future, voluntarily giving up MORE of their income. But when one of the family loses their job or gets a pay cut you focus on reducing spending, not reducing income! Income is the thing you absolutely need to stay afloat.

For the next two years the Tories are forecasting 2.5% tax increases, so the 1% reduction is very much a short-haul gimmick for election year. Furthermore they are making some very risky assumptions about inflation and waste tonnages, which are critical to their budget balancing. They are counting inflation to be 2% for the next three years, yet it’s currently 3.7% / 4.8% (CPI / RPI) which is quite some distance from their predictions!

On waste they are saying that they can save on the waste contract because waste tonnages are down due to actions by the council including promoting composting. Yet when I challenged the council about declining recycling rates, they claimed reduced tonnages were due to the recession. Which is it? There has been no major fundamental shift in supermarket’s dependence on packaging (though some incremental improvements by some of them) which leads me to believe that economic growth will also bring growth in waste tonnages again.

That’s it for now. I’m meeting officers next week to run through the many detailed questions and thoughts I have on the Tory budget. My colleague Bill Randall and I have asked to meet Labour councillors to discuss any joint amendments we might be able to agree on. We have until 28th February to submit amendments for checking by finance officers. Watch this space for more updates.

What are council reserves?

Yesterday, amid all the snow-related stories, Eric Pickles the Tory local government minister issued an extraordinary statement about council reserves:

“…building up reserves isn’t simply about turning town hall vaults into Fort Knox. These untapped funds exist to ensure councils can respond to unexpected situations like the pressing need to tackle the nation’s unprecedented level of debt.”

Naturally this got widely reported, along with figures on local authority reserve levels e.g. The Argus writing “Sussex councils holding on to more than £387 million between them”

The problem with all this is that most council reserves are not there for emergencies. Of the £65.8m reported as being in Brighton & Hove City Council’s reserves, the vast majority is allocated. About £9m is the general reserve which is for use in case of unexpected issues like severe weather, swine flu, terrorism or a major financial hiccup. Certainly some of that could be used to bridge a gap in the council’s budget whilst trying to meet the coalition government’s cuts.

The rest of the ‘reserves’ are more like separate savings accounts for specific purposes. For example one is used to tuck away money for big IT spends — we don’t have enough spare cash in one year to buy these big ticket items so we save up for them — just like people do. We also put away money for things like the cost of major, long-term contracts such as the waste Private Finance Initiative deal with Veolia. Capital costs, for building and refurbishing, are also set aside in ‘reserves’ while the projects are tendered for and delivered. It’s money we have to spend, not spare cash.

If Eric Pickles was just an uninformed commentator this wouldn’t be worth my noting. But Pickles is a former leader of Bradford Council, an MP and the minister responsible for Local Government. He knows full well that most council reserves are not available for general spending. The cynicism of his intervention, just before the details of local government cuts are published, is quite breath taking. He has managed to put a story out there which implies councils are sitting on piles of unused cash whilst heartlessly cutting services.

Pickles knows no shame and is an ideological cuts man through and through, as he was on Bradford Council. The reasons Councils are going through contortions to save money and cut services is because that is what the ConDem government and Eric Pickles want. Labour planned cuts too, and stick by that message post-election. Only Greens proposed finding new sources of revenue by reducing tax evasion and increased top-rate taxes. We will keep putting the alternative out there and working constructively to prevent the worst cuts.

The Green view on the national debt

Further to my earlier post on this issue, an additional opportunity to set the national debt in context arose last week. The Conservative group of councillors submitted an extraordinary motion using the national debt to justify massive cuts whilst also reassuring residents that ‘Intelligent Commissioning’ and other actions left the council in a good position to handle the cuts.

Well this motion had to be amended, and so I submitted a detailed amendment, as you can see here.

Unfortunately the amendment fell, because Labour sat on their hands for the vote. Thankfully the motion as a whole also fell. Still Labour need to seriously reflect on what they stand for before coming to the next council meeting.

My speech to the amendment is copied below. I got no response to my final question as Conservative councillors ranted on about other things, if you can bear to watch on the webcast.

Speech proposing amendment to Conservative public debt NoM
21st October 2010

Mr Mayor

Yesterday George Osborne announced as part of the comprehensive spending review that not only would, according to the Local Government Association, local authority budgets be cut by 25.5% but that the cost of borrowing for councils would also be increased by 1%.

This authority and its officers are going to be squeezed beyond all reason. Yet, as benefit cuts bite and the economy suffers from the ill-considered government slashing of public services, our residents will need us more than ever.

Our amendment makes abundantly clear that the current UK national deficit is by no means sufficiently alarming to justify these unprecedented cuts. The deficit is not particularly large by historical comparison, the interest charges are a reasonable proportion of our GDP and the repayments are owed over many years. We include a number of ways in which the deficit could be reduced through tax and benefit reforms, but not public service cuts.

To echo a certain high street store – These are not just cuts, these are coalition government cuts. With lashings of hypocrisy and soaked in misleading statements.

What we are witnessing are not just a few efficiency savings. We are seeing the utter abandonment of whole swathes of our society. At the slightest hint of stormy waters the coalition government are chucking people overboard shouting to them “if you can’t afford to survive then you’re on your own.”

Frankly Mr Mayor, the administration have some gall presenting this motion reassuring residents in the face of this economic and public sector catastrophe.

I urge members to support this amendment. And I finish with a question – did any of the members on that side of the chamber actually check the Chancellor of the Exchequer’s lurid claims about the scale of the deficit, or did they just swallow it – hook, line and sinker?

Not worth the panic: This deficit is manageable

To my great frustration, almost every coalition government policy announcement has been prefaced with something along the lines of ‘we must take this action due to the enormous national deficit we have been left to deal with…’

Thusfar this premise has gone woefully unchallenged. Rather than comparing the deficit to something arbitary (like our education or health budgets as I’ve seen Tories doing) let’s compare the current deficit with our national deficits in the past.

The best way to compare deficits past and present is to use a relative measure – deficit as a percentage of GDP. Currently the UK national debt is 71% of GDP. Yet we’ve been well over that in the past century. In 1923 it was 181%, 110% in 1940 and 238% in 1947. We’re fighting an economic battle to recover from the credit crunch, running up a little deficit is to be expected.

The key issue with debt is the interest you need to repay. On that front the current deficit is also not as alarming as the government would have us believe. UK national debt interest repayments peaked at around 7% of GDP in the 1920s. We’ve never been near that level since, and currently interest payments are between 3 and 4% of GDP. Economists feel interest repayments are not a risk until they hit something around 12% of GDP.

The other risk with debt is how quickly you have to pay it off. Thankfully the Treasury have been, dare I say it, ‘prudent’ in how they have raised debt. The average UK debt maturity is 17 years. In other words the average of the repayment terms on our debt means we have 17 years to pay it back. Spain are currently struggling to push their average debt maturity up to just 6.7 years. Spain, Italy and Greece have all been facing huge immediate repayments on short term debt they’ve been using. The UK in the meantime has time to manage the deficit as economic circumstances allow.

So the government’s attempts to protray the national financial position as a househould who have splurged on the credit cards is woefully inaccurate. We don’t have only 30 days to pay it back, the interest isn’t spiralling out of control and we’re not in the worst position ever.

While there’s no doubt that ideally any government should work towards lower deficits, timing is also important. Essentially the cuts we’re going to see imposed on us tomorrow are like starving your family in the hope of paying your mortgage off more quickly.

It doesn’t make sense. Mortgages are stable long-term debts at reasonably stable rates of interest. Starving the family just when they are facing the challenge of a recession is, to put it mildly, foolhardy.

Even running up a little more long term debt to look after our society — with benefits and quality public services — makes moral and economic sense. We would be caring for those most in need, and keeping people in jobs. Which is exactly what our economy needs.