Councils urged to 'find more efficiency savings' as Healey confirms finance settlement » Local Government » 24dash.com

Local councils were today warned they must be "equal to the task" of finding more efficiency savings as the economy enters a recession.

Local Government Minister John Healey confirmed that English councils would be given a funding increase of 4.2% for 2009-10 - in line with the Government's three-year settlement announced last year.

Some councils had called for funding to be increased further and Mr Healey acknowledged the figure was "tight", but said it was fair and would allow for them to plan with certainty.

He told MPs: "I am confirming the second year of this three-year finance settlement.

"I recognise that it is tight. But it is fair, it is affordable and it continues our increasing investment in council services.

"And to help during these tough economic times, our settlement also maintains the certainty, flexibility and equity that local government says it wants from central government.

"We know councils are capable of innovating, managing change and improving efficiency. The challenge on all these fronts is set to become still greater, and councils now need to demonstrate that they are equal to the task ahead."

Mr Healey said that councils expected to make £1 billion of efficiency savings during 2008-09, which he described as "not good enough".

"Councils need to be finding more than £1.5 billion new savings every year," he added.

And he also said that councils affected by the collapse of Icelandic banks would be able to set their budgets for 2009-10 without making provision for any loss on their investments.

For the Tories, Bob Neill described the announcement on funding as "bad news".

"This is a thoroughly bad settlement for council tax payers in this country," he said.

Mr Healey said that in line with the three-year settlement the overall funding to councils would be £73.1 billion in 2009-10, an increase of 4.2%, and was expected to be £76.4 billion in 2010-11, an increase of 4.4%.

"This means with a Labour Government councils have had above-inflation increases every year since 1997, and now an extra £8.9 billion through this current three-year settlement," he said.

"In spite of significant pressures on the public finances, this confirms the Government's continuing commitment to local government and continuing investment in the local services people need."

Mr Healey said he expected local government to find annual 3% efficiency improvements, in line with the rest of the public sector.

Delivering it would mean councils had an extra £4.9 billion to spend over three years on improving services or keeping council tax down.

Calling for local authorities to find £1.5 billion a year in savings, Mr Healey said councils would be required to set out their efficiency figures on council tax bills from next year.

"The public has a right to expect better value for money, from both local and national government," he said.

"And at this time, people expect councils to tighten their belts like everyone else."

Councils were "very uncertain" about how much money they would be able to recover from failed Icelandic banks, Mr Healey told MPs, so he had "exceptionally" decided to make a regulation that they would not need to adjust their 2009-10 budgets for any possible losses.

"This will give them time to adjust their medium term financial plans and be clearer about recovering their money before making decisions which affect their budgets or council tax," he added.

Mr Healey said average council tax increases in 2008-09 had been 3.9% - "the lowest increase for 14 years and the second lowest ever".

Government expected average council tax increases for 2009-10 to remain "substantially below" 5%, he said, adding that ministers would "not hesitate" to use capping powers to protect against excessive increases.

Capping action had been taken against eight authorities in 2008-09, he explained, and ministers were proposing limiting the police authorities of Cheshire, Leicestershire and Warwickshire to council tax increases of 3% in 2009-10.

Mr Neill said the PBR stated there would be increases in council tax in subsequent years of 6% and 4.7% respectively - a further 10.7% increase over two years at a time of predicted deflation.

He said: "That is an enormous whammy for council tax payers in real terms."

With regard to the Icelandic bank collapse, the Government should make an assessment of the total losses of the councils, he said.

"So far the action team that we were promised turned out literally to be two men without a dog sent into each local authority."

Mr Neill also raised the issue of business rates, saying that ports were suffering backdated tax bills amounting to some £33 million.

He asked whether the Prime Minister's "U-turn" on empty property rates would be met with any compensation for local authorities.

He said: "Just as the Treasury clobbered taxpayers with their tax bombshell on Monday, you have consistently now clobbered council tax payers with your own council tax bombshell today."

Mr Healey insisted that in every year since 1997, ministers had provided above-inflation funding to local government.

He said that council tax was determined by local authorities and not by central Government. The figures published in the forecasted reports were often higher than the average council tax bill "for accounting purposes", he said.

"I expect that to be the case again for next year and let me repeat - we will not hesitate to use our capping powers to protect council tax payers if they're affected by excessive increases."

On Iceland, Mr Healey said it was not possible to provide an assessment because there was not yet any information from the banks.

He acknowledged the concerns of the port industry but said the PBR allowed ports to spread the payments of the backdated tax bills over eight years.

For the Liberal Democrats, Julia Goldsworthy said that council tax payers could be in for a "nasty shock".

Any real term increases have "disappeared" and many councils face a real term funding cut because of this year's settlement, she said.

"Isn't it correct that this will mean either council tax increases or cuts in services to local council tax payers?"

Ms Goldsworthy said councils were expected to achieve a 50% increase in efficiency while the UK was in recession at the same time as the Government indulged in a "splurge".

"If the PBR was intended to tempt shoppers into spending before Christmas, this settlement will leave council tax payers with a stonking New Year hangover."

Mr Healey said he expected the same level of efficiency from local government as he expected of central Government.

"If your only alternative to the sort of funding pressures that all parts of the public sector ... inevitably face at this time is the removal of a council tax and the introduction of a local income tax, that will put enormous pressure on working families."

Labour's Lindsay Hoyle (Chorley) asked ministers what they would do to help his local authority get its money back following investment in an Icelandic bank.

Mr Healey said Chorley council should take responsibility for the investment choices it made.

The Government would provide financial experts to work with the council free of charge to help with short-term pressures if needed, he said.

"If the council believe they have a good case for capitalisation, then perhaps you might like to say to your council I am prepared to consider that."

Tory former Treasury minister John Maples (Stratford-on-Avon) urged Mr Healey to use capping powers to "keep council tax increases below 3%".

He told MPs: "The reduction in VAT of 2.5% is worth about £200 a year for someone on £20,000 a year - a 5% increase in council tax would absorb about a third of that."

Tory Anne Milton (Guildford) said the councils in her constituency "will get one of the lowest increases in central Government grant".

"We are one of the biggest contributors to the Treasury's coffers. We are starved of money for infrastructure with the councils left with very little choice but to raise council tax or to cut services."

Mr Healey said the funding allocation formula "tries to balances the needs of local areas with their ability to pay" but that the Government's "floor" system, which guarantees a minimum annual funding increase, benefits councils such as Guildford and Waverley.

He said he would welcome written representations from Ms Milton's local authority on its financial settlement.

But he added: "Unlike last year I don't plan to meet with local authorities - I'm confirming now the second year of a three-year settlement. I'm quite anxious to reduce the number of meetings from the 42 I had last year."

Tory Greg Hands said his local council, Hammersmith and Fulham, had yesterday announced a 3% reduction in council tax for the third year running and had also reduced its debt by £20m.

He called on Mr Healey to visit his constituency with Prime Minister Gordon Brown and Chancellor Alistair Darling to "see how public finances should be run".

Mr Healey said he couldn't speak for Mr Brown or Mr Darling but he would visit Hammersmith and Fulham.

"I will visit where you wish me to go with your council," he told MPs. "But I will also come to Fulham and visit some of the areas to see things that others are telling me about - which is savage cuts to many of the services and the grants that support some of the most needy people in the borough."