Council Finances Explained: Why Labour Councils Have the Money to Oppose Cuts

The idea behind austerity is simple. It is the ludicrous belief that the working-class should pay for a financial crisis that was caused by, and yet still benefits, the super-rich. Prior to Jeremy Corbyn’s surprise assumption of the leadership of the Labour Party, this anti working-class idea was shared by all the major political parties (including UKIP), but excluding the Trade Unionist and Socialist Coalition (TUSC). And while support for Corbyn’s inspiring commitment to opposing austerity is immensely popular among the lay membership of the Labour Party, problematically, it seems that most elected officials of the Labour Party still refuse to resist the politics of austerity. This means that instead of fighting to oppose Tory funding cuts, Labour-run Councils up-and-down the country have resigned themselves to making the Tories cuts for them.

The majority of Labour councillors in Britain therefore pretend that their hands are tied and that they cannot fight the Tories cuts agenda. In Leicester — where 52 of our cities 54 councillors are members of the Labour Party, and where we have Labour City Mayor (Sir Peter Soulsby) — our Council, rather than building a fightback against cuts, is now consulting on a new cuts budget, which will wreak further devastation on all public services.

The Blairite leadership of such Councils are however well aware that cutting service provision is an unpopular choice that need not be made. Council leaders therefore go to extreme efforts to portray financial affairs as some sort of dark arcane art, whose alleged complexity is best left to themselves and their finance officers.

But in reality, Council finances are not all that complicated — they only appear so utterly convoluted and complicated because absolutely no effort is expended by Council leaders to explain the nature of their political choices in an open and transparent way. Such needless obfuscation of course only serves to undermine democratic accountability, which is useful to Council leaders who would otherwise be unable to defend their political decisions in front of the public.

Council Finances, An Introduction

The basics of Council finance are simple to grasp if explained clearly.

Council’s have two main pots of money to spend: the first belongs to their “Capital Programme” which is used to build things; the second belongs to their “Revenue Budget” which is used to pay for the provision of various public services.

The Council also keeps a back-up sum of money in “general reserves” which can be used as they see fit to ensure that quality public services are provided in the face of irregularities in their overall income. Here we should note that under the guise of austerity, the amount of money provided by central government to local Councils has been reducing year-on-year; hence the ongoing social crisis facing local communities particularly those in poorer parts of the country (like Leicester).

Decreased Funding

Blairite leaders can be trusted on one thing, as they are able to state the basic facts on the decreasing amount of money they have been spending on service provision.

In Leicester, the most recent data shows that for the financial year 2017/18 the quantity of money that has been set aside for service provision is £303.1 million, which is significantly less than the 2010/11 financial envelope which was £358 million.

Leicester City Council 2017 a

Of course, over this time the city has grown, even as the overall service budget has been cut, and as the Council has various legal duties to care for vulnerable adults and children (whose numbers have been increasing every year) they have been legally obliged to increase their spending on such services. Thus in 2010/11 the total money spent on providing such care for adults and children was £128.5 million while for 2017/18 it had increased to £166.8 million. Needless to say this means that over the same period of time the money spent on providing “all other services” has faced a massive reduction, being cut from £192.3 million to £126.6 million in 2017/18.

Since 2010 the Tories have been relentlessly slashing government funding for local authorities, cutting what is known as the “revenue support grant” while simultaneously making local Councils more reliant upon raising money from their constituents via Council Tax and Business rates. For the financial year 2017/18, Leicester therefore received just £48.1 million as their revenue support grant – which is a massive cut compared to the £133 million they received just four years ago.

(Notably city income obtained via local tax collection cannot make up for this massive shortfall, and so the income for Leicester City Council in 2017/18, combining the revenue support grant with income from Council Tax and Business rates was £258.2 million, compared to £303.4 million in 2013/14.)

Leicester City Council 2017 b

Why Reserves Matter

Now we come to the important matter of reserves and how they might be used (as an emergency measure) to prevent the ongoing destruction of local service provision.

This is a topic that Blairite leaders would rather us not discuss, and so they have come up with a sneaky way of discussing reserves in a way that confuses rather than clarifies financial matters. The trick such leaders play is by strictly limiting any public discussion of such matters to a small proportion of their overall reserves, and then making the argument that these reserves are almost exhausted.

In Leicester, Council leaders have defined a small amount of their overall “earmarked general reserves” into a sub-account they labelled “managed reserves.” And true to the regular pronouncements from Council leader Sir Peter Soulsby, this portion of the reserves is soon to be exhausted — £17.7 million is to be spent in 2017/18, and the final £7.8 million will be spent the year after. (Finally, almost as an afterthought Leicester Council have £15 million in what are called unallocated reserves which they are apparently still saving for an emergency.)

But here is where the discussion gets interesting. According to Leicester City Council’s most recent “Statement of Accounts,” the Council has £171.7 million in their general reserves (as of March 2017) — some of which could be drawn down to forestall the latest round of cuts while an effective mass campaign of resistance is built.

The only part of these general reserves that can’t be used is that relatively small portion (£36.1 million) that is ringfenced for health and education service provision, which leaves us with a sizable remainder of £135.6 million. Of these remaining reserves £27.5 million is already allocated in the sub-account labelled “managed reserves strategy,” which means there is an additional £108.1 million that the Council could potentially use to oppose Tory austerity. Furthermore, there is still the aforementioned £15 million of unallocated reserves.

Reserves: A Closer Look

At present the largest sub-account of the available earmarked general reserves that could be used to oppose service cuts is called the “Capital Programme Reserve.” As of March 2017 the amount in this designated capital reserve account was £37.5 million, while the year before the amount in this account was only £17.1 million. (Evidently £23 million was added to this account while just £2.6 million was spent, leaving a year-end increase of £20.4 million.)

Leicester Statement of Accounts 2017 Earmarked reserves partial

Here it seems that Leicester Council’s leaders have made the political decision to transfer money that could be used to forestall service cuts to a part of their budget that is used to fund capital projects; an area of Council finances which already have their own separate and well-funded income stream.

This, it seems, is a longstanding problem, as earlier this year a small group of principled Labour councillors pointed out that the Council, as a result of an underspend on the revenue budget, was in the process of transferring £7.4 million from the revenue budget to a capital project – into Sir Peter Soulsby’s Local Economic Action Plan (for more on this read my earlier article “Rebel Labour Councillors Challenge Leicester City Mayor”). The principled Labour councillors made it clear that this transfer made no economic or political sense especially given that the money could have been kept within the city’s revenue budget to prevent vital public services from being wrecked. Sir Peter Soulsby and the majority of the members of the “Overview Scrutiny Commission” however disagreed with small number of Leicester’s frustrated councillors.

Mass Redundancies Vs. A Socialist Fight-back

Rather than planning to fight Tory cuts by drawing down on earmarked general reserves and investigating means of extending the “use of prudential borrowing powers” it has become clear that Leicester Council’s leaders find it more pressing to prepare for mass redundancies. I say this because the Council have deemed it necessary to increase their “Severance Fund” (which is located within their earmarked general reserves) from £8.1 million in March 2016 to £11 million in March 2017. As the Council notes in its own definition of this defeatist fund:

“This reserve exists to meet the redundancy and other severance costs arising as the Council adapts to the planned reductions in government funding over future financial years.”

The question that therefore has to be asked, again and again, is why is a Labour-run Council prepared to adapt to Tory cuts when it should be fighting all cuts?!

For anyone who has been following recent events, it looks increasingly likely that an anti-austerity Labour government led by Jeremy Corbyn will come to power within the next year. So surely this should mean that Labour-run Councils should be doing everything in their power to show to the public why they should believe them that a Labour government would fight austerity in practice not just in words.

A Mass Campaign to Oppose Killer Cuts

What should be emphasised is that this ideologically-driven Tory cuts-agenda is literally killing working-class people. A recent article published in the British Medical Journal made a convincing case that an extra 120,000 individuals have lost their lives since 2010 because of Tory cuts to health and social care!

This is why various trade unions along with the Labour Representation Committee have argued that the Labour movement must call “on councils to exhaust all available avenues under the law, including extensive drawing-down of reserves and use of prudential borrowing powers, to forestall the latest round of cuts while an effective mass campaign of resistance is built.” (“Bring a New Politics into Local Democracy,” December 21, 2015) This is an option that is categorically maligned by Blairite Labour leaders.

Democracy is Key

Fight Labour must, and fight now; a simple argument which was forcefully put at this year’s TUC Congress by Unite assistant general secretary Howard Beckett. Beckett did this by moving an emergency resolution which condemned the actions of the Labour-run Birmingham City Council for their attacks on bin workers. As Beckett put it:

“Councillors who talk of hard decisions in language that has no place in a socialist Labour party. Those councillors should feel physically sick at the thought of working people losing thousands. But let’s be honest – a Labour council that does not stand up for our members is of no use to our movement. If they sound Tory, talk Tory and act like Tories then they deserve to be called Tory. I say clearly to these councillors that if you continue to act like Tories then Unite in the region will deal with you as if you are Tories.”

That is why the issue of democratic accountability within the Labour Party is so vital. If Labour councillors persist in acting like Tories then it is sensible that they should be democratically replaced by socialists who are willing to fight!

One comment

  1. This makes for very interesting reading, it says what I have said all along, about, not only, Blairite councillors but also Blairite MP’s, if they sound like Tories and act like Tories, then I am afraid they are Tories, they should be deselected by the constituency Labour Parties they purport to represent As the article clearly states they should be replaced with genuine Socialists who will fight for the people they are representing, not looking after themselves and their careers

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