Headlines: August 4th, 1997

Local Government Minister Hilary Atkinson has invited the Local Government association to take part in a radical new look at funding local spending. The outcome will be a new framework for local government finance. She said: ” Getting a fair and just finance system for local government is absolutely vital if we are to have a renewed and vigorous local democracy. Local people have to see that their needs are understood by central Government but also that their council is being given the flexibility and opportunity to make financial decisions for which it will be accountable to the electorate.” Business organisations and other representative bodies with an interest in local government finance will also contribute to the review.The review will cover five key areas:

  • the balance between central direction and local discretion,
  • the current arrangements for local authority revenue raising, including a fairer distribution of the council tax burden
  • ways of encouraging cost-effective and efficient delivery of services
  • measures to reduce needs and resource inequalities thorough a fair distribution of government grant
  • possible improvements to the capital finance system including greater use of Public Private Partnerships.

The review of the local government finance system is part of the Comprehensive Spending Review, but the urgent need for it is underlined by figures released by the Local Government Association on spending plans for 1998/99. The figures show that, despite the additional funding in the July Budget for education, there will be a shortfall of £1b, which is about 2% of the budget. The LGA stressed that successful delivery of the Government’s own priorities depends on a fair deal for local government.

The spending shortfall results from the following cost pressures:

  • education – more pupils, teachers pay award £815m
  • environment – £537m
  • social services – growth in care needs of the elderly etc£994m
  • fire – £59m
  • police – £417m
  • roads – £101m
  • general -£ 158m

Total £3.08b

The total cost pressures of £3.08b is reduced by the Budget increase of £1.61 and efficiency savings of £0.45 to give a net shortfall of £1.01.

Although the findings from the review will come too late to resolve the difficulties for 1997/98, the discussion climate created by the review will stimulate efforts to find a short term solution.