Council Tax, savings and measures to tackle the recession

…or in other words, Lewisham Council’s budget for 2009/10.

A brief summary of Monday night’s Council meeting is that the Mayor’s budget proposal was adopted unamended on the casting vote of the Chair of Council (Labour voted in favour, the two Tories abstained and we, the LibDems and the Socialists voted against). However, it is still worth looking at the budget amendments and the debate in more detail because of the different strategic and political approaches to Lewisham’s priorities they reveal.

The basic fact is that for the Council to provide services and infrastructure for over 250,000 residents costs money. About a third of the funding the Council has control over and can prioritise (which excludes the education budget, the majority of capital investment funding and earmarked grants for specific purposes that are all ringfenced by the government) is made up of Council Tax. The other two thirds are a government grant.

Because this government grant increases at a lower rate year on year than the cost of providing services increases for the Council, savings have to be made every year, and these are effectively either genuine efficiency savings or cuts to services. The total amount of savings made on existing services determines how much extra money is available for new initiatives. Whilst we obviously have no problem with efficiencies, we disagreed on some of the savings proposals because they constituted service cuts which would disproportionately affect vulnerable residents. Therefore we proposed to reverse these savings; by also suggesting additional non-service savings this would have meant that slightly less funding was available for anti-recession initiatives (but more would be provided from other sources) – thereby still ensuring a balanced budget. Rather bizarrely in the debate on Monday one cabinet member spent most of his allocated speaking time enthusiastically defending savings proposals we hadn’t objected to – so maybe the conclusion from this is that he didn’t find anything substantial to criticise in our amendment.

Apologies if the above sounds a bit technical but it is important to fully understand the impact of the Council Tax freeze proposed by the LibDems. As was outlined in the debate on Monday, several London boroughs have gone for a zero increase for next year. This proposal is easy to understand and undoubtedly popular with voters. However, it does not come without a price. If implemented in Lewisham, the freeze would have led to a lost income to the Council of £2.21m, thus wiping out any scope to fund anti-recession initiatives. The LibDems proposed that these should be funded from reserves instead. The problem with that is that by their very nature such initiatives would require funding beyond the next financial year while money from reserves can only be spent once, so budget pressures would simply be postponed to future years or reserves depleted to an extent where the Audit Commission would get very nervous about the borough’s financial arrangements.

Another consequence of the freeze would have been that there would have been no scope to reverse any savings proposals at all including the service cuts. In boroughs where a freeze was agreed, such as Southwark, substantial increases to service charges for residents were required to balance the budget – particularly hitting families and other service users.

Freezing the Council Tax would have saved a Lewisham household in a Band D property £25.42 per year. It would not have saved anything for the 17,000 households who are on low or no income and receive 100% Council Tax Benefit. It would also not have done anything for the residents who are hardest hit by the economic downturn and who would benefit from anti-recession initiatives.

In addition, if in the future the Council wanted to increase its budget to the levels achieved by a 2.5% increase over several years, the only way to do so after a freeze year would be by implementing a higher increase later on to make up for the difference. Whatever anyone thinks about Council Tax (Sue has already outlined why we are against it in principle), as long as there is no other (and better) system to replace it, this is unfortunately the framework we have to operate in.

The Tories submitted an amendment to the LibDem proposal suggesting a zero increase in Council Tax for two years should be funded not by scrapping the anti-recession measures but by finding more than £2m additional savings. This was withdrawn on the night.

In an earlier post Sue has already provided information on our growth items and the home insulation schemes in particular. On Monday night one cabinet member was surprised that our main focus in tackling the recession was insulation schemes. As I said in the debate, the reason is because they deliver on several fronts. In Kirklees the mass private sector home insulation scheme has successfully been rolled out (following a Green budget proposal that the other three parties are also now claiming credit for), and on the basis of its proven benefits even the Local Government Association, which does not normally shine with Green policies, now recommends it. Kirklees households collectively save more than £1m on fuel bills every year, and more homes were insulated there last year than across the whole of London under the government’s Warm Front programme. At the same time such schemes provide local employment and training opportunities, and thereby generally boost the local economy.

Another plank of our anti-recession package was funding for implementing the London Living Wage in Lewisham’s contracts. While staff directly employed by the Council already receive LLW (£7.45 per hour), contractors providing a wide range of services from school meals to social care are currently only required to pay their staff the national minimum wage, which is £1.72 per hour less than LLW. This is fundamentally a question of fairer pay (which is why we proposed a motion to Council on this last spring which was unanimously agreed) but even more important in the current economic climate as this recession is predicted to hit those on low incomes hardest. Whilst we had earmarked a substantially larger amount of money for this in our budget amendment, we are pleased that there is at least a start and LLW is going to be implemented in some Council contracts now.

So what’s going to happen next? The savings proposals are going to be implemented and the Mayor has announced a range of initiatives to tackle the recession in Lewisham (apprenticeships, tackling long-term unemployment, a social enterprise fund, additional support for the advice sector, London Living Wage). He also said that whilst he could not accept our proposals as part of the budget, he actually quite liked some of them (home insulation, the capital programme and our fuel reduction savings proposal) and would get officers to investigate them in more detail. Hopefully Lewisham is going to be a better if not the best insulated place after all!