The problem came to a head in the small district council of North West Leicestershire when it became almost too successful in winning money from capital challenge schemes to renovate run-down mining areas. The council won money from the European Commission, the government's Single Regeneration Budget and the Rural Development Commission but each award depended on matching funding from the council itself, whose capital programme was already heavily committed. To keep the extra funds on offer the authority had to find pounds 300,000 from its pounds 7.4m revenue budget, which had been severely capped by the government.
North West Leicestershire concluded that its budgeting was not up to the job of paring down spending and took advice from Sandwell and Eastbourne, authorities which had changed their processes better to reflect priorities.
Mike Davis, the treasurer and deputy chief executive, said: "Under the old system we would be millions over with two weeks to go before the final budget-setting deadline. So we moved to priority-based budgets agreed by the whole council, not just based on committee priorities."
The budget-setting process was reversed. The capital programme for this financial year was set last September, and became the first fixed element of the budget. The use of balances was decided at the beginning of the budget process, rather than at the end as is normal.
Although the council did not know what the final grant settlement would be from the government, it decided not to wait before each committee agreed its basic revenue spending programme. To allow committees to keep within their new lower budget limits, it was agreed to devolve more of the decision- making process to the committees themselves.
They were given complete discretion on virement - the ability to switch money between budget heads. In previous years committees had bid against each other for growth bids. Now they had a lower financial ceiling but new spending was permitted provided the costs were taken out of existing commitments. Committees and departments consequently took much greater care in preparing their budgets.
For the next financial year the council will move to a "full outcomes budget", where every service standard will be compared to the council's statutory responsibilities. There will be no presumptions of continued funding for even the most long-standing activities.
"The intention is that we can release resources out of existing base budgets," Davis says. "Some services will not have been reviewed for many years.
"Chief officers are now desperately ripping apart their base budgets, and at the end of the day we will have a far better budget-making process. I envisaged it being much more difficult to change people's thinking. It was difficult - but not as difficult as I expected"