Try to keep it under your cap

Paul Gosling looks at the difficulties councils face in setting budgets

The most wide-ranging challenge to the Government's capping of council spending is under way, with police, fire and local authorities all defying government limits on expenditure.

Ironically, the authorities that are breaching the Government's controls are not militant Labour authorities but, for the most part, moderate shire counties, often with the support of Conservative councillors.

The first to set a budget above the Government's cap was Lincolnshire Police Authority, which on 10 February unanimously agreed a budget of £60.4m, compared with a cap of £58.6m.

Last week, South Yorkshire Fire Authority was about to set a budget of £32.9m, against a cap of £31.9m, after receiving advice that anything less would breach its statutory duty to meet minimum fire service standards. At the last minute, the Department of the Environment announced a higher cap for metropolitan fire authorities.

This Friday, Shropshire will consider a proposal, backed by all three main parties, to breach its cap by £6.2m. And next week councillors from all parties in Newcastle are expected to agree a budget over cap by £1.7m. Other authorities, including Norwich and Gloucestershire, are considering challenging caps.

In the two years since the council tax was established, six authorities have set budgets above their intended caps. Last year, Sheffield was allowed to raise an extra £3m after it agreed a new limit with the Department of the Environment.

It is not illegal for councils to set a budget above their intended cap, as it is the final cap that counts, which will only be established once Parliament approves it in June. Until then, the intended cap acts as guidance. The problem for councillors is that budgets must by law be set much earlier - by 11 March for councils that send out their own bills, and by 28 February for authorities that add a precept on to the bill of another authority.

Some councils may therefore be sending out one lot of bills in April that defy the intended cap but are lawful, and then have to rebill if a final cap is approved below their budgets. The cost of the rebilling will be met by the local authority, but a case might be argued for councillors to be surcharged if they acted "unreasonably" in setting their initial budget.

It is highly unlikely that district auditors will attempt to surcharge councillors. In each case, members will argue that they acted reasonably, believing they might persuade the DoE to raise the capping limit. The support of Conservative councillors assists this, but most important is advice from relevant officers that a budget over cap is necessary to maintain services.

The DoE has intimated that authorities setting budgets over cap might persuade the Government to raise some cap limits. The threat of this has already worked for a few metropolitan fire authorities, and could now assist some county councils.

But a spokesman for Sheffield City Council advises authorities they will get more from the Government by a policy of co-operation than by confrontation. "Traditional Labour authorities have had their battles in the past," he said. "There is a new air of pragmatism, and they realise they get more by compromising than by meeting them head on. That worked for us last year, it would be wrong to change tack now."

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