Sunday, 21 July 2013

Local Government Finance

The issue of Local Government was again debated at full council on Thursday night. Although this issues has been explored over the years on this blog it is worth revisiting. We heard from the opposition parties the usual cries that 'borrowing is out of control' and 'our borrowing costs represent 33% of council tax'.

Whilst I accept that Local Government finance isn't the most sexy of subjects in the world, I would clearly expect members to understand as it impacts decision that they make. All councils from John O'Groats to Lands End have their annual revenue budgets made up of three parts:

1. Central Government Grant
2. Fees and Charges
3. Council Tax Receipts

Whilst all councils have a revenue budget, sitting side by side this budget is what is known as a capital budget. This budget pays for one off projects like the building of a new road for example. This budget is comprised in two parts:

1. An amount of money taken away from the revenue budget at the start of the financial year
2. Money that has been borrowed from the banks

Most projects can be what is known as an invest to save, for example, a new building can be much more energy efficient and will save vast amounts on electricity costs as well as maintenance costs as it is a new building.

What the opposition do, especially the Independent Party, is take the borrowing repayments and only offset these against Council Tax receipts and not the entire revenue budget. What the Independent Party also fail to tell residents is that whilst they publicly disapprove of borrowing they have also supported the vast amount of new projects in this town, which, guess what, have been done by borrowing money. Where the Independent Party have no responsibilities of power and just snipe from the sidelines they can say one thing and then do another and think that residents will not notice.

Setting a budget for a council is really no different than setting a family household budget. Like a council budget, a family budget can be comprised by many different parts, for example, one full time wage, one part time wage and child tax credits.

Taking this make believe family and their budget, this family decide that they need to invest in a new car that is more economical on petrol to save on petrol. The family decide that they do not have the money outright but decide that they will get a bank loan to buy a new car as they can afford the repayments.

One of the Independent Party knock on their door and try and convince the family that they supported them in getting a new car but claim their borrowing was wrong as it represented 33% of the Child Tax Credits that they receive. This is the fallacy of their argument. Don't be fooled.

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