Settlement fallout: part 1

As Section 151 officers will be only too aware, the settlement came late this year and – as I predicted here in November – it has caused more than a few headaches for councils.

The timing problem was as bad as we thought it would be in terms of impact on both members and officers having a last minute scrabble trying to understand the settlement on December 19^th before we closed for Christmas. It was difficult to get information out to councillors, both ruling and opposition, in that time space, but I wanted to have something out by the end of that pre-Christmas week in case people actually wanted to do budget deliberation over Christmas.

We were able to provide a two year grant explanation and a very, very rough medium term financial plan, then we came back to work last Wednesday and had to try and get the real report done. We have a six-week budget consultation period required by our constitution but that obviously had to go and we had councillors waive it. It’s a shame that we’ve had to deprive any interested party from seeing it.

Those are minor timing issues though, compared to the problem that we, and I’m sure many other councils, are having with their towns and parishes in relation to the Council Tax Reduction Scheme.

Because we are rural, we have dozens of towns and parishes. Normally we notify them of the tax base, they have their budget and precept setting meeting and notify us what their precept is by the end of January and that’s fine. This year with the introduction of Council Tax Reduction Scheme replacing council tax benefit, instead of us paying the money out and government giving us subsidy, it is all processed through tax base. After a long consultation in the Autumn the government said it was looking at two possible solutions to this problem of parish tax base going down therefore causing parish council tax charges to go up. The first was setting two different tax bases, one for parishes and one for the major precepting authorities. The second was payment of grant from the government to the district council for them to give to the parishes to offset most of the impact of the tax reduction.

I favoured the latter (being a taxbase ‘purist’) but virtually all my S151 colleagues favoured the former – understandably given its greater pragmatism. Over 90% of respondents to consultation also said they preferred two different tax bases. One of the big surprises before Christmas was that the government published the results of that consultation but said, no, we’re going to go with a grant. So 90% of consultees are disappointed and many confused.

The problem with the late settlement and that last minute decision by government meant that all district councils were hurried into divvying up that grant. We rushed through two reports to our two council meetings to agree the methodology but because that was before the settlement we couldn’t include the amounts of grant. So the councilors approved the methodology instead.  Once we had the amounts after the settlement I had the delegated authority to apply that approved methodology to the announced grant and divvy up the amounts. That’s not a problem in itself but obviously politically it would have looked an awful lot better, especially if we get challenges, if the council had approved the amounts rather than me doing it.

So then as quickly as we could we number crunched and before Xmas we published the amounts each town and parish would get. With some of the towns it is a major amount of money. They’re free to do what they want and they could set the same precepts anyway with a smaller tax base and have a council tax increase. We tried to explain to them the nature of the change, the reason they’re getting paid this money, the fact that they set their budget, take into account the grant that should reduce their budget and precept requirement, that would still give them a shortfall so they could choose to use reserves, make savings or just totally ignore the shortfall. But the point was, they would know what the impact on their council tax level would be when they set their precept.

Even though we have gone to all that trouble – taken early decisions, got the council to do things quickly, disseminated the information to towns and parishes as quickly as we could– inevitably we have still had some towns and parishes phoning us completely confused by all this. And they’re the ones who have bothered phoning me. I’m worried that there are still towns and parishes out there who haven’t fully understood it and could easily set a precept the same as last year or even higher than last year without fully realising that their tax base reduction is such that it will cause a 10%+ increase in their council tax level.

That is entirely their own sovereign decision but I would hate for them to be in that position through ignorance and not be able to justify their council tax increase to their parishioners. If they have got a good reason for keeping the precept high then fine, I’ll just reflect that in the council tax bills, but if I ask them why, because I’m getting asked questions and would like to pass on answers, I don’t want them to look at me quizzically and say they didn’t realise.

So that has been a problem, 20 minutes each time explaining to people why their tax base has gone down when they know for a fact that there have been new houses built in their parish and were expecting a slight taxbase increase.

Councillors have also had less time to ask questions. One of my councils is wealthy and looking at a council tax reduction for the next three years. They’ll just use reserves if there is uncertainty left and they haven’t got time to produce more precise budget estimates. However they’re in an unusual position.

My other council has only got two or three weeks to make some fairly tough decisions in terms of savings and growth ideas. Councillors generally want to give lots of growth ideas and not have to make any savings but the financial pressures that the Vale of White Horse has got mean that we did kick off a savings round in the Autumn but there is only a couple of weeks now to make decisions about those savings ideas, none of which are that palatable. I’m encouraging councillors to take all of the savings ideas and none of the growth ones, but of course they want to have growth ideas and normally they would have a lot longer to consider and reconsider. It’s usually an iterative process.

For the opposition and for scrutiny who usually want longer to try and understand and haven’t had the more intimate discussions that the ruling group have it isn’t much time at all.

With all the rushing and complication there is the risk of error and mis-estimating, and being forced into ‘optimism bias’. Ordinarily there would be weeks to have arguments between Section 151 officers and councillors on medium term financial assumptions and what to cut, but that timescale has been shortened. Weaker S151 officers will feel under pressure to just agree optimistic savings estimates to get their medium term plans to balance and in extreme cases just to get 2013-14 budgets to balance. That will just delay the inevitable for a few months. If they’re too optimistic they’re going to have a financial crisis in 13-14. I don’t think it is that bleak for most councils but if they set an optimistic medium term plan then perhaps in year two or three it will come back to bite them hard.

I would encourage S151 officers to be tough and hard and not cave into pressure. That’s our job. The reason why there is a statutory S151 officer in every council is to be politically neutral, to not cave in, to represent council taxpayers and ensure that the long term needs and financial stability of the council are met. This is as opposed to councillors who might only be thinking one year ahead or to the next election. That’s a cynical point to make but that’s why S151s were invented. If we do our jobs properly we have got nothing to worry about, but there are some who are under more pressure than others.

I often find my instinct tells me we can’t afford to be that optimistic, that it doesn’t feel right, but I can’t actually prove to my cabinet members that they are wrong but I have to stand by my professional opinion. If S151 officers can’t disprove the optimistic estimates that might be forced on them they might cave in. In a few cases they could be lucky and get away with it, but in the majority if a S151 officer’s gut tells them it is the wrong thing to do it will probably come back and haunt them. I do hope that the combination of lack of time, a complicated new system and optimistic members doesn’t cause this settlement to hurt councils’ finances in the future.

Steve Bishop is Strategic Director for South Oxfordshire and Vale of White Horse District Councils

Part 2 next week.