Observer column: 09 March 2016
Local Government Finance Is Ever More Taxing
On February 24th, Hastings Council agreed net budget of £15.7m for 2016/17. As I've already reported, we did a two-year budget in 2015/16, so no big surprises this time - no cuts to jobs or services, although growth in the budget is limited to essential items - for example, repairs to the 'inland cliffs' around the castle, which will cost £200,000. We also kept the council tax support scheme, which means the very poorest people don't have to pay any council tax. There will be a 2.07% rise in the Hastings Council portion of the council tax bill - equivalent to £5 a year for a band D property, the maximum increase allowed.
Although our budget deficit in 2015/16 was £330,000 less than expected, thanks to higher income from our commercial property rents, and an extra £100,000 saved from senior management restructuring, we still have a larger than expected deficit for the coming year. This is because of business rates valuation appeals. The council keeps 50% of the business rates it collects, but the government determines how much rates a business should pay. However, we have to compensate businesses if the valuation office decides the rates bill is too high. And because the appeals process is so slow, this compensation can go back several years. We had to pay Tesco over half a million pounds because of this. All of which means that what the council keeps from business rates has been more than paid out in appeals - keeping half the business rates has cost the council money, rather than raising income. So we have an £881,000 deficit in the 2016/17 budget. This will be covered by spending reserves - something we can do only for another two or three more years.
But Hastings isn't the only council facing financial crisis. Many councils are, and some are in a considerably worse financial state. This year, two county councils were about to be told that their budgets didn't balance - in other words, they'd run out of money. So the government came up with a last-minute 'transition grant', which had been carefully structured to bail out the rural shire counties that were facing the biggest problems. The effect of that was to push this grant towards the richest parts of the country. Hart District Council in Hampshire (the richest area in England) got over £1m in transition grant. Wealden Council (the richest area in East Sussex) got £500,000. Hastings got a measly £5,000.
However, over the past six years we've got used to government grant formulae that pump most of the money into the richest areas, so this wasn't unexpected. I've already described in previous columns the income generation strategies we're looking at to cover the £3.5m gap in the budget we're facing by 2019. But for county councils, the position is even worse, with gaps of tens of millions of pounds opening up in their social care budgets.
One thing is clear, and it's something pretty much all councils and commentators are agreed on: the current system of funding local government is unsustainable. It has to change, and more funding needs to be found. If it isn't, essential services such as refuse collections, adult social care, and children's services, will fail in some places. Local government can't go on like this.
Council Leader's column