Councils' bottom line

The Treasury has plans to make it easier for local councils to balance their budgets - and not before time, reports Paul Gosling

Most local authorities fail to plan properly, manage, or account for their use of capital assets, according to a new report from the Audit Commission. But the failings are at least as much the fault of central government as of the councils themselves, which are discouraged from adopting corporate approaches to asset use by the fragmented character of the bidding process for national and European public money.

Local authorities face enormous difficulties in planning capital programmes because central government habitually approves councils' permission to borrow just three months before the beginning of each financial year. Approval for borrowing for additional specific projects is often given half-way through the year.

These borrowing approvals normally lapse at the end of the financial year, placing the onus on a council to spend money quickly rather than to ensure that projects are properly designed, built and accounted for. The Audit Commission has called on the Treasury to change its rules, to encourage greater lead-in times on capital projects - recognising that many schemes need to be built over a longer period than is currently permitted - and to accept some slippage from one year to the next.

There is an obvious conflict between the desires of central and local government as regards the priorities of councils' capital programmes. During the years of Conservative governments the emphasis shifted towards more centralised control over capital programmes, with more use of earmarked schemes that councils could bid for.

While these various "Challenge" schemes have been highly effective in persuading local authorities to attract private finance, to meet the schemes' criteria they have skewed local spending towards central government priorities. Spending on the maintenance of schools and housing has decreased, with money going on more glamorous transport and economic development projects.

It had been expected that poor asset management by local government would be transformed when, three years ago, councils moved on to capital accounting systems - similar to commercial accounting practices and Whitehall's resource accounting system. The Audit Commission has found, though, that the impact has been much less than was expected.

Capital accounting has changed the behaviour of direct service organisations (DSOs), which are forced to win tenders against the private sector and produce a profit if they are to continue in operation. DSOs have to account for their use of capital assets as part of their trading costs. Those parts of local government not subject to compulsory competitive tendering do not have to operate separate cost-centre accounts. Consequently, neither do they have to show the cost of their use of fixed assets. Many capital assets are, instead, shown as part of the general cost of running a local authority.

As a result, few councils properly account for their use of capital assets, and this discourages them from managing their fixed assets effectively. Many council-owned assets are under-used and could be disposed of. Local authorities currently hold pounds 120bn-worth of assets, but many councils do not regularly review their assets portfolio. Similarly, with the exception of their housing stocks, most councils do not produce stock condition data on their capital assets, and this undermines their ability to plan maintenance and capital programmes.

The Audit Commission believes that creating a statutory obligation on local authorities to maintain stock condition data on all fixed assets would be a good starting-point for a new capital assets management system. Councils might also be obliged to set priorities in consultation with local partners and central government, account for the revenue implications of those priorities, and investigate the potential for private sector funding for the capital programme, suggests the commission.

Greg Wilkinson, associate director of local government studies at the Audit Commission, and one of the report's authors, says he is disappointed that accounting reforms have not led to better asset management. "The new arrangements for asset accounting haven't had the bite that many expected and hoped," he concedes.

"The way in which you account for assets can either hide the consequences [of asset retention] from the outside world, or make them apparent, leading councils to shed assets that are no longer wanted," says Mr Wilkinson. Local authority accounts remain too opaque, with assets seldom allocated to their appropriate cost centres, and the potential benefits are thus not realised.

"Councils continue to hold assets which are under-utilised, or downright unemployed," Mr Wilkinson believes. "Asset accounting doesn't apply to school buildings, so they are treated as a free good, and it doesn't matter if only half the properties are being used. If you had to pay rent for the unused property you were holding, you would quickly realise you needed to do something about it."

Similarly, council-owned buildings that attract an income, such as swimming- pools, often fail to be used to their commercial optimum. The failure of councils' accounts to show the cost of asset under-use encourages councillors and managers to ignore this.

"Information brings problems into focus better," says Mr Wilkinson. "Members should be assisted to recognise the opportunity costs that are forgone."

As the Private Finance Initiative becomes more widely used by local authorities, many of these problems will be overcome. "It is almost inconceivable that a council could enter into a PFI deal without information on asset use," explains Mr Wilkinson. "Or, if they did," he warns, "a decision would not be a good one"n

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Compensation and Benefits Manager - Brentwood - Circa £60,000

    £60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

    Data Analyst/Planning and Performance – Surrey – Up to £35k

    £30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

    Wilko Johnson, now the bad news

    Former Dr Feelgood splits with manager after police investigate assault claims
    Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

    Mark Udall: The Democrat Senator with a fight on his hands

    The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
    New discoveries show more contact between far-flung prehistoric humans than had been thought

    New discoveries show more contact between far-flung prehistoric humans than had been thought

    Evidence found of contact between Easter Islanders and South America
    Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

    Cerys Matthews on Dylan Thomas

    The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
    DIY is not fun and we've finally realised this as a nation

    Homebase closures: 'DIY is not fun'

    Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
    The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

    Air New Zealand's wizard in-flight video

    The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
    Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

    Pumpkin spice is the flavour of the month

    The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
    11 best sonic skincare brushes

    11 best sonic skincare brushes

    Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
    Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

    Paul Scholes column

    I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

    While other sports are stalked by corruption, we are an easy target for the critics
    Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

    Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

    Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker