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Living on the edge: UK councils and financial failure

Local Government Association (LGA) chairman and Conservative peer Lord Porter recently caused alarm by suggesting that 12 to 14 UK councils could be nearing financial collapse. What is the current situation, and how close is the edge?

Counting the cost

The BBC has reported that Chancellor George Osborne is planning cuts amounting to around 25-40% of current council budgets. The LGA says that these reductions could leave local authorities £20bn worse off.

In response to criticism of shrinking council purses, the government has been quick to point out that local authorities have a reserve of £22bn that could absorb austerity shocks.

Safeguarding services

While righting the economy painlessly is a pleasant idea, council reserves are not the untouched bounty that Westminster suggests. A 2015 CIPFA (Chartered Institute of Public Finance and Accountancy) study found that 94% of council cash is already earmarked for future projects.

Several local authority representatives have raised concerns that community wellbeing is being affected by austerity: Cambridgeshire county council leader Steve Count says his council would be short of funds even if every local public library were to be closed.

Fighting for survival

The government hopes that cuts will force councils to be more innovative and efficient. While only time will tell if this is truly possible on a national scale, it does seem that several steps could be taken to safeguard services.

The Grant Thornton UK/Localis 'Making Devolution Work' report found that 95% of Local Enterprise Partnerships feel economic gains could be made through further devolution. George Osborne’s suggestion that local authorities may gain control of £26bn of business rates is also good news for struggling councils.

Improving payment systems to track cash flows and monitor debt could help to ease council budgets, as could switching to ethical Enforcement Agents like Dukes Bailiffs. Although recovering unpaid monies will not rectify the current situation overnight, sensitive debt collection may give local authorities enough breathing space to cope with further cuts.

If you work for a local authority and are concerned about future cash flows, contact Dukes Bailiffs to discuss how our services could reduce pressure on your budget.

How can council tax debt recovery be improved?

The UK's national deficit currently stands at around £12bn, making the recovery of monies owed to local and central government more important than ever. Although councils across England have reported improved collection rates since 2012, government figures indicate that as much as £2.4bn has been left uncollected in recent years.

What is being done?

Manchester City Council, Salford City Council, HMRC and the Cabinet Office have already participated in a pilot scheme that aimed to streamline council tax recovery. In order to build on the success of this project, the Department for Communities and Local Government (DCLG) recently proposed a consultation that will let local authorities suggest ways in which collection rates could be improved.

Barrie Minney, a senior enforcement manager at Brighton and Hove City Council, has already given his views on how more unpaid tax could be recovered. Mr. Minney suggests that landlords should be made liable for paying council tax on student properties, and would like to see liability orders registered as County Court Judgements. Although these ideas must be considered, we believe there's an easier way to collect unpaid sums.

Enforcement Agents

Local authorities called on Enforcement Agents 2.1 million times during 2014, but there is still considerable scope for ethical companies like Dukes Bailiffs to boost council tax recovery rates.

While some sections of the press have criticised councils' use of Enforcement Agents, we at Dukes Bailiffs pride ourselves on delivering a genuinely ethical service that protects councils' reputations.

Our representatives work with debtors to build sustainable payment plans, and have a proven track record when it comes to efficient council tax recovery: our services helped Staffordshire Moorlands Council to achieve a collection rate of 99.17% in 2011.

Though the coming consultation will no doubt improve council tax recovery, local authorities may be able to boost their rates simply by switching to Dukes Bailiffs. If you work for a council that's struggling to keep budgets in check, contact one of our representatives to discuss sensitive debt collection today.

How is the government's 'academies programme' affecting council budgets?

An investigation by the BBC recently revealed that converting council schools into independent, state-funded academies has cost local authorities £32.5m since the 'Academies Act' was unveiled in 2010.

Footing the bill 

The BBC's report highlighted that councils are being asked to pay off the debts, including budget deficits and legal fees, of any school that becomes an academy. The cost borne by local authorities to date has totaled £32.5m but, somewhat worryingly, this figure was only £22m in December last year.

Many of these costs are being covered by funds that were allocated to councils under government education grants. In practice, this means that normal schools are taking a hit so that academies can start with a clean slate.

Responsibility vs. fairness

The Department for Education (DoE) argues that when a "deficit was accumulated under council control”, it is councils’ responsibility to clear the way for new academies. The Local Government Association has been critical of this view, however, and the group's deputy chairman David Simmonds responded to the DoE as follows:

"It is not fair that some schools are burdened with a deficit while other schools can...leave that debt behind”. Mr. Simmonds also added that it “is not right that the taxpayer foots the bill. This money could instead be spent in ways which directly benefit pupils."

Finding a solution

Though both sides in this debate have a point, the fact remains that local authorities' education budgets are suffering. In addition to rising academy conversion costs, a larger problem is that councils have been forced to write off too much debt. In fact, local authorities have written off as much as £32bn in ‘irrecoverable’ debt since 2008: this sum is equal to about 1,000 times the amount spent on academies.

Dukes Bailiffs can help local authorities to shrink the size of their 'irrecoverable' debts by collecting unpaid invoices in a sensitive and efficient manner. If you work for a local authority that's facing hard times due to mounting education costs and diminishing grants, contact a Dukes Bailiffs advisor and we'll offer friendly assistance today.

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