The state of Liverpool's public finances

You may find this information useful when trying to understand the state of the finances at Liverpool City Council and what we may and may not be able to do about it. The detail comes courtesy of Cllr Paul Brant, Deputy Leader of the Council and the Labour Group






Q1 When do we know the budget gap for next year
The Government announced the Departmental (i.e. Ministry) spending on 20th October in its budget. However individual Councils only get informed of their allocations several months later. The Government is making a number of changes to the funding formula which is used to distribute the money and it is likely that these changes and the increased level of cuts will significantly adversely affect Liverpool when our allocation is announced. We expect to know our grant income in about early December for the next financial year (2011/12). This gives us only a few weeks until we set the budget. This short period itself prevents us - and organisations which we fund - from properly planning for

Q2 What about the £120m gap we hear so much about?
Last January the Lib Dems Medium Term Financial Plan showed a gap between expected income and expected expenditure of £14m £53m, £30 and £29m totalling £124m for each of the following financial years. You will note that next year's gap of £53m is the biggest figure - this is because they shunted some of this years cuts into next year (to allow them to set a lower Council Tax last May). Labour inherited a big problem when we took control this year.

The above budget predictions assumed some of the central Government cuts (to the level of about 10% spending reductions). As we all know the Lib Dem /Tory Government plans build in 25% spending reductions over the rest of the parliament, so our budget gap will be significantly worse even if the cuts were spread evenly throughout the Country. So far the Government has cut funding streams which disproportionately hit Liverpool (BSF, HMRI, ABG), thus we can expect a significantly bigger gap to fill in the budget.

Finally, to make matters worse, the Government figures suggest they will frontload their cuts in the first 2 years of the next 4. To give you some idea of the scale of the problem, we get 70- 80% of our income from Government Grants which total about £600m, so even the £53m cut comprised a 9% cut in one year. Much of our expenditure is not really controllable by the Council (we are locked into contracts, or have statutory functions like child protection to discharge) so a much greater % cut to individual areas is inevitable. As we spend most of our money on staff, many fewer staff are likely to be employed in future years.

Q3 What do we know already about the Government imposed cuts on Liverpool for the next 4 years?
On a broad brush basis we can be confident that over the next 4 years we will have over £1billion of cuts to deal with. The following table shows how this is made up

£350m - Building Schools for the Future
£80m - Housing Market Renewal Initiative reduction - 4 yrs x £20m
£145m - Revenue cuts of 7.25% (nationally) applied to our £600m non-schools grant income over 4 years
£400m - Area Based Grant - abolished the whole £100m x 4 years
£ 278 m - Capital Grants 40% reduction in our grant of £174m (£194 m - £20m HMRI) x 4 years
£1. 25 bn

We may get some additional revenue to compensate for 1 and 4, but we are likely to lose more than envisaged in 3 and 5 (they are very prudent figures). Thus we look likely to have a loss significantly in excess of £1bn, the whole of the annual loss of budget for Scotland - which has of course received national attention!

Q4 Haven't we already closed the budget gap by taking tough decisions since we came into control in May?
Yes, significant and early steps were taken by us to tackle the financial situation as soon as we came into power in May. These include reducing Agency staff, spending on consultants, removing the bonuses for senior staff, managing vacancies and allowing voluntary severance. We have reduced the cost of running the Council by over £10m per year. However the budget set by the Lib Dems, which we inherited grossly underprovided for the cost of Adult Social and Child Protection placements by over £10m per year. We have thus been running to stand still since we came into power. We will almost certainly have to use the savings we have accrued to plug this under provision.

The Adult Care overspend is principally due two reasons. Firstly, an aging population who have greater needs for our services. Secondly, personalised budgets for individuals mean that whilst the Council provides facilities (Day care centres etc). the individuals often chose to spend their money elsewhere - hence we have the cost, but not the income to fund the service. We are in the process of rationalising the Day care centre provision but these processes take time and require proper consultation. The Lib Dems have known for years of the effect of these changes (many of our Day care centres were at 30-40% occupancy when we took control).

The Children's overspend is principally due to many more children being taken into care since Baby Peter. The Council does not have enough Foster Carers to place the children with, thus we are forced to place them with expensive private contractors. We are acting to try to increase the number of foster carers - including advertising on television along with other North West Councils. The increase of children in care was clearly evident in September of last year (long before the budget process was started). The Lib Dems failed to budget for the increased numbers.

Q6 Can't we just deal with the problem by setting an 'illegal' budget as the Liverpool Trades Council suggested?

Liverpool City Council gets about 80% of its income from Government. If we refused to set a budget for next year which matched our expenditure we would just run out of money in our bank account part way through the year, meaning that the Council would cease to function. In fact the City Treasurer and the District Auditor have a legal obligation to ensure that the Council remains solvent, and would issue statutory notices long before we ran of money (or if we tried to set an 'illegal' budget). These notices would inevitably lead to the Government taking over the running of the Council directly - i.e. the arch Thatcherite Tory, Eric Pickles would run Liverpool City Council. We know from past experience that a Tory Government has no hesitation using legal powers against Liverpool City Council.

Q7 Can't we just raise Council Tax to solve the problem?
The Government have made it very difficult. Firstly they have promised us the equivalent of 2.5% increase in grant if we freeze the Council Tax. We only get the money if we freeze the tax, thus if we want to raise an extra 1% of tax income, we would have to raise the Council Tax by 3.5%. Secondly they have said that there needs to be a referendum if a Council wants to raise Council Tax by a level they deem appropriate. It's not totally clear that this power will be enacted in time for the coming financial year, however, a similar referendum in the West Country some years ago led to the public voting to cut education spending and their Council Tax.

Even if we can put the Council Tax up, a 1% rise only raises about £1.7m, a drop in the ocean given the scale of the budget gap we face.