Moving money around

Fifty here, fifty there; sooner or later it'll be real money

As councils prepare their budget savings for the year ahead they are often forced to do some quite ridiculous things in order to meet their savings targets.

I was put onto this topic by the excellent Richard Taylor who writes an extremely detailed blog looking at the detail of decisions made by Cambridge Council and other public bodies. In this particular piece he was commenting on the local leisure contract being awarded by the council. This particular contract was delivering savings of £500,000; all of which were coming from the fact that the outsourced company had charitable status and could therefore claim an exemption on local business rates.

As Richard pointed out:

It is obvious to me that we need to elect MPs who will exempt local councils from paying rates on swimming pools and libraries. It’s bonkers that when such facilities are run by councils they have to pay rates, but if run by others they can be rate free.

This surely that can’t be right. The company aren’t doing anything different to that which the council could do; the only difference is that they get an exemption on a tax which eventually comes back to the council in its funding.

The change being made is not making a real benefit to the overall health of the nation’s finances. The £500,000 saving is simply a £500,000 reduction in money being spent by local government and received by local government.

And yet local councils up and down the land are considering making similar changes as it helps them protect their bottom line. Apparently, even the Government’s proposed reforms of NNDR do not address these issues.

I had a bit of a rant about this being ridiculous in the office and was met with a number of raised eyebrows. Apparently, this is all too common.

For example, rules around housing benefit incentivise local authorities, and indeed their clients, to move into sheltered accommodation rather than nursing homes. No money is saved but in the care home the local authority will pay for the accommodation instead of the national government and in sheltered accommodation the Government pay through Housing Benefit.

But Richard’s point about perverse incentives goes further than this type of example.

Our Children’s service, and plenty of others I hear, are considering quite substantial cuts to their preventative services. The rationale is that cuts need to be made and these services are not statutory and therefore not protected by the Government or by rules around certain grants. An example is the local Connexions service which has been lost in many local authority areas.

This is a saving that can be made quite easily but the impact may be long lasting. It will impact on our schools and have a real resonance on ASB and youth offending. It might also lead to lesser results in schools and the need for more investment in skills training later in life.

Even more common are cost shunts between the NHS and local authorities although people who know about these things tell me that the situation is better than it has been as we work together in closer partnership.

There are plenty more of these perverse types of saving being considered. Either the ‘saving’ has an impact on national government expenditure at the expense of local government or the ‘saving’ has a knock on impact on local government and national government budgets in the future.

Right now we seem to be involved in a massive game of beggar my neighbour and the perverse rules developed over the past years, allied to disproportionate cuts to the local government budgets, are simply encouraging people to game the system.

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4 Comments on “Moving money around”

  1. Ed Hammond Says:

    The phrase “armchair auditor” was designed for Richard Taylor. I follow his frequent tweets with interest (particularly his live-tweeting of council meetings – always entertaining).

    The cost-shunting and “beggar my neighbour” approach is nothing new – it goes back to the “playing at shops” that councils were encouraged to do back in the 80s when business units and internal trading arrangements between council departments were set up. The logic is that by monetising everything it makes it easier to draw out potential value improvements. The danger is that this means that you end up with things like that slightly eccentric-sounding leisure decision. Councils will need to be careful though – relocalisation of business rates will mean that pushing facilities out to exempt organisations will mean that they take a hit on their own income. The whole thing is highly circular.

    • Funnily enough, that by another reason to get it done quickly (back to the idea of there being a fire-sale). If the organisations are already pushed out the hit to the NNDR coming to the council will be factored into the grant. As the Govt don’t plan to allow councils to make any edits to the scheme and exemptions within it local authorities are left with gaming the system as one of a few options… Worrying.

  2. uk savings Says:

    Boosting UK savings can definitely be done better than what the councils are doing. Thank you for this enlightening post.

  3. […] assets and income columns whilst expenditure isn’t changing much, but that needn’t stop the canny Head-of-Finance-about-town from appearing to still live the life of several years ago. Simply craft a wedge of bank note sized […]

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