Research Project

In The Balance: Granting local authorities new financial flexibilities to cope with the downturn
14 May, 2009

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In The Balance: Granting local authorities new financial flexibilities to cope with the downturnThis new paper argues that dramatic cuts in public services could be avoided by giving local authorities new power to balance their budget over three years rather than one.

NLGN argues that local authorities should be allowed to introduce “Keynesian” economic policies in order to protect their communities from the recession. This would allow them to continue to invest in services and even offer targeted cuts in council tax. At present councils have to balance their budgets every year but NLGN Director Chris Leslie argues that the current economic climate requires them to have extra borrowing powers to invest in services. He argues that if councils only had to balance their books every three years, it would allow them to invest in services at a time when their income is being reduced and has urged the Government to amend the current Local Democracy, Economic Development and Construction Bill to legislate the change.

Local authorities currently have their funding allocated over a three year period but have to match their income to their expenditure every year. Chris Leslie argues that local authorities should have the same ability as national government to balance their spending plans over a longer period. He also argues that councils have earned the right to greater fiscal autonomy by demonstrating sound financial management and efficiency savings.

The paper argues that greater freedom to balance their budget over three years would give councils the ability to:

  • give residents council tax discounts in a particularly difficult economic year
  • retain staff, facilities and programmes which would otherwise face termination because of the in-year balance requirement
  • take advantage of circumstances when their income growth exceeds expectations and facilitate a ‘dividend’ to service users or taxpayers in future years
  • challenge the Police, JobCentrePlus, Primary Care Trusts and others to commit jointly to new programmes beyond core service provision and over the medium term.
Chris Leslie argues:

“The current financial and legal constraints placed on local authorities – who are the largest employers in some communities – may create more harm than benefit, especially at a time when precisely targeted local interventions to help specific employers, workforces or neighbourhoods may be required that the current maturity in local authority financial competence should allow the budgetary rules to be revisited and refreshed, proposing a multi-year balancing framework may now be a reform whose time has come.”

“With the Budget suggesting great volatility in government grant to local authorities in future years, we argue that multi-year balancing may be a necessary tool to avert waste and facilitate smoother planning, avoiding service quality ‘shocks’.”

Publication Date: 14 May 2009