Council finances face the Rumsfeld conundrum

FORMER US defense secretary Donald Rumsfeld would feel quite at home in the finance department of Huntingdonshire District Council as it struggles to predict next year’s budget requirement.

Inevitably, there are a few ‘known knowns’ and there may be some ‘unknown unknowns’ lurking in the shadows to emerge before the budget is set next February.

But it is the plethora of ‘known unknowns’ that is making budget planning so difficult.

For example, two significant new sources of income to compensate for some of the ‘formula grant’ slashed by the Chancellor two years ago both depend on the performance of the local economy.

The ‘new homes bonus’ is paid retrospectively on the basis of the number of completions. In this current year it is worth �1.9million – nearly 10 per cent of HDC’s �22m net revenue budget – and is forecast to reach �6.1m by 2016/17 as additional housing accumulates in the district.

But HDC no longer owns council houses – though senior councillors are contemplating using historically low interest rates to stimulate local authority house-building in the district – and it has no direct control over the private housing market. So its influence on the level of income from the NHB is limited to creating a local environment in which people want to live and work, and to facilitating ‘sustainable’ house-building through the planning process.

Then there is ‘localisation of business rates’ from next year. Currently, business rate poundage is set nationally, which is not set to change. The money is collected by HDC and goes straight to the Treasury. Some comes back in grant – an amount set arbitrarily by the Government with no relation to the amount collected.

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The new arrangement means that up to half of any increase in business rates collected in Huntingdonshire could come back here. The catch is that the council would be penalised for any overall reduction in local business rates if the economy were to shrink.

So all the principal councils in Cambridgeshire are having to take a punt on a pooling arrangement on the assumption that the county’s economy will continue to grow. That is probably a pretty safe bet – the county has survived the recession quite healthily – but local authorities cannot compel corporations to move into the area or expand within it. (The enterprise zone at Alconbury is excluded from the arrangement.)

Also from next year there are further changes in benefit rules. While pensioners are protected, some families that currently get 100 per cent Council Tax and housing benefits will receive only 80 per cent. HDC is not confident of being able to collect the 20 per cent contribution from all of them.

There are also likely to be changes in Council Tax allowances, such as for empty and second homes, but in all these areas the detail has not been worked out so budget planners are having to rely on intelligent guesswork.

Nonetheless, there is some good news at Pathfinder House, HDC’s Huntingdon headquarters: the council has found almost �300,000 of additional savings over the coming five years, taking a bit of pressure off the possibility of future service cuts, though it is still forecasting the need for a further �600,000 savings by 2016/17.