Wednesday, 7 September 2016

Brent Council's financial decisions 2016-2020 deserve wider debate

The Brent Cabinet on September 13th will be receiving a report on the Council's financial position which forms the backdrop to decisions on the possible fixing of the Revenue Support Grant (RSG) for 4 years and the level of Council Tax for the period 2016-2020.

Changes in funding means that the Council will be facing a reduction in income despite an increase in cost pressures and will have a cumulative budget gap of £31m by 2019/20.  Local government financing is due a major restructuring after that date.

If Council Tax is increased by 3.99% a year the gap will be reduced:

Budget proposals are formulated from October onwards but the Cabinet is being asked to delegate a vital decision to Brent's  CEO Carolyn Downs in consultation with Muhammed Butt, Brent Council leader, over the next few weeks because the Government's deadline expires before the next Cabinet meeting.

The report outlines the Government's offer:

As part of last year's local government finance settlement councils were given the option of fixing their future RSG allocations until 2020. In principle this could address one key concern that the local government sector has highlighted for a number of years: the difficulty of long-term financial planning when key items of income are only determined annually.
In order to take advantage of this the council would need to make a decision on the four year settlement option by 14 October 2016 and write formally to DCLG on this. As part of this it would need to present an efficiency plan; central government have indicated that this should not be an onerous document, and can be based on the council’s medium term financial plan.
This is not a straightforward decision: it is a decision about risk management, and whether accepting or declining the settlement offers the better path for the council to manage its risks. DCLG have set out considerable emphasis that a four year fix is exactly that: it sets RSG until 2020 regardless of what may happen with the economy or other government decisions. Of course, legally, government cannot bind future Parliaments, and so it would technically be possible for the DCLG to reopen the settlement even for those councils that chose to fix their RSG.
Accepting the four year settlement would give the council more certainty of future funding. This makes financial planning and communication much simpler, and significantly reduces the potential volatility in the system. This creates obvious arguments for accepting the fix, as it will aid the council's budgeting process and hence the quality of decision making. It would also clearly shift the focus onto those sources of funding that the council can influence and control.
It is not only the decision in principle that has to be made by Butt and Downs but an 'efficiency plan' submitted that will dictate the level of savings (cuts, 'efficiencies' and income generation) over the next four years.

These are major decisions and I do not understand why the Cabinet cannot convene a special meeting before the deadline to consider Downs' proposal and efficiency plan. The wider Labour Group as well as the opposition seem to have been left out of the process completely but their hands will be tied for the next four years by these decisions.

Further. the report discusses at length the various borrowing options open to the Council and calls for Conrad Hall, (the report's author), who is Brent's Chief Finance Officer to be delegated the decision on the hiring of financial advisers in consultation with the Deputy Leader, Margaret McLennan:

The traditional way for councils to borrow money for routine capital investment is to borrow money from the Public Works Loan Board (PWLB). However, given the scale of funds the council is planning to borrow there are potentially options that will come in at lower cost than the PWLB, such as issuing bonds that would be available for pension funds to buy, loans from the European Investment Bank (which may still be available after Brexit), or the Municipal Bonds Agency. This list is not exhaustive.
Evaluating these options is complex, and requires specialist skills. In particular the skills to evaluate not just the headline rate, but also the price the costs of any differences in risk assumed by the council under different circumstances. In addition with any variable rate product, it will be necessary to consider a variety of scenarios to understand under what scenarios the council would benefit from a particular product, and under what scenarios it would lose out from a particular product.
Further, it could be that the best approach for the council is to offset the risks and benefits of different products available to council, and this approach could be more advantageous than choosing a single, simple product. Alternatively, a single simple product may be more advantageous than more products and the complexity involved.
The council has the skills and expertise to client advisers for such activity, but it would be unwise to enter into such significant long term commitments without taking proper professional advice. The cost of such advice is not yet known, but is often expressed as a function of the total borrowing requirement. As stated above, this is already known to exceed £100m and, depending on what else the council wants to build into its capital plans, could potentially be much higher than this.
Owing to the highly technical nature of the advice it is therefore proposed to delegate to the chief finance officer, in consultation with the deputy leader, authority to procure and appoint the necessary advisers. Any decision on the structure of the actual borrowing will of course come back to cabinet for approval.
The full report covers much more ground very throughly and is available HERE


Philip Grant said...

The Council's Chief Finance Officer and Deputy Leader will consider other potential borrowing options than a straightforward loan from the Public Works Loans Board?

Because these other options may be complex "products", they want to pay specialist financial advisers to give them 'highly technical advice'?

Isn't that the way that Brent ended up with an illegal "sale and leaseback" deal on the former Town Hall several decades ago, with its dodgy investments in Icelandic banks, and with the potentially expensive LOBO loans that Martin has drawn attention to in several previous blog articles this year?

Why not save the money that would be spent on the outside advisers, and do simple, straightforward (and low risk!) borrowing, which may carry a slightly higher interest rate, but would not mean gambling yet again?


G.Lee said...

This is madness...the Local Authority isn't supposed to be borrowing, forecasting, procuring, and investing...this is the business of banks and finance companies. The Local Authority should be providing services for the local community...albeit within the financial constraints of council tax revenue and central government grants. Brent Council seems to be cutting really important services that are actually cost effective in the long term..and hoping they will just 'get away with it'....The long term costs of closing Libraries, Youth Centres, Adventure Playgrounds, and support agencies like the Sickle Cell society, Pupil referral Units, Gateway Club, school crossing patrols, and more is huge...These are small organisations, but they do a lot for the local community.
The Labour party is currently being lead by a man who has the support of the rank and file labour membership,and he opposes austerity. We have a local authority that is not only jumping through the hoops that the Tory Government is providing...but is willing to jump even higher...just to balance the budget that the Tory Government is demanding of them....When do they draw the line and say...enough is enough? What are they afraid of... to take a stand for local people and say...NO MORE CUTS ?