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Council Funding

INCOME, PRECEPTS, CAPPING,
GENERAL AND SPECIAL EXPENSES.


INCOME
Although some of Fylde Council's income comes from one-off grants and from charges for services, its main income comes from three sources:

Income analysis

46% Council Tax paid by residents
23% Central Government Grants
31% Business Rates from commercial premises

CENTRAL GOVERNMENT GRANTS (23%)
Grants are calculated individually for each Borough and County Council according to a complex formula based on size, demographics, levels of deprivation, crime, and other factors. They are not paid to Parish Councils.

UNIFIED BUSINESS RATES (31%)
Business Rates are collected by Borough Councils but are immediately paid over to central government. They re-distribute them back to Borough and County Councils according to a formula. (This varies at the whim of Government, but is typically based on a £X per head of population basis). Business rates are not 'repaid' to Parish Councils.

It will be seen that, at present, around 54% of a Borough or County Council's income comes from Government, with only 46% raised from the local Council Tax.

COUNCIL TAX 46%
The Borough Council is a 'Billing Authority'.

It collects taxes in the form of precepts from residents of Fylde Borough on behalf of itself, the County Council, and Parish Councils.

More recently, since the separation of the Police and Fire services from the County Council, it also collects precepts on behalf of these autonomous bodies.

External bodies have to notify Fylde Council each year of the amount they wish to precept for, and that becomes part of the Council Tax demand.

Typically, the Council Tax we pay in Fylde comprises:

Taxation analaysis

76% Lancashire County
11% Fylde Borough
8% Police
4% Fire
1% Parish

It will be seen from these proportions, that a small percentage increase in the 76% the County spends will generate a large increase in the tax we pay, but a large percentage increase in Fylde Council's spending produces a relatively small increase on the sum payable in Council tax. (e.g. a 10% increase in Fylde's precept is 10% of 11% thus it is roughly 1.1% of the total. A 2% increase in the County precept will produce an overall cost increase of 2% of 76% = 1.5%)

CAPPING
Government has additional powers to regulate spending by Borough and County Councils. Chief amongst these is 'capping'. 

Here, at times of its choosing (typically in the run up to an election), Government puts a cap on the annual amount that each Council may spend.

This has the effect of limiting the sum that a Council may raise locally.

Typically Government does it by reducing the support grant it provides by £2 for every £1 the Council spends over a notional cash limit imposed by the Government.

Last year, Fylde decided it needed an above-inflation increase in its Council Tax of around 9% for each of the next five years. It planned to do this to put its spending back on track. However, the Government's imposition of a 5% cap this year has forced a rethink.

As well as making savings in its revenue budget and significantly increasing fees and charges, Fylde is currently trying to find ways of re-classifying expenditure to remove it from the capping calculation. 

If it can move expenditure to parishes, and in doing so, take it out of Fylde's capping regime, it can increase its spending by say, 9% on the remainder and still not hit the capping ceiling.

Effort is at present being directed toward this end. It is believed two external financial experts have been engaged and are currently working on such plans. 

SPECIAL AND GENERAL EXPENSES
If Fylde Council undertakes a function performed elsewhere in its area by a parish council, it may class its spending on this function as 'General expenses' which are chargeable over all taxpayers in Fylde, or it may class them as 'Special expenses' which are only chargeable over residents living in a part of its area.

The purpose is really to avoid 'double charging' where residents pay two different councils for 'the same' service, or at least to try to avoid duplication of services.

The 'default' position is that all expenses on such concurrent functions are automatically classed as Special Expenses chargeable over a specific area, unless the Council has resolved to declare them to be General Expenses chargeable over all taxpayers.

From the introduction of the legislation in 1992, up to 2002, Fylde Council passed an annual resolution to declare all parks and gardens to be a General Expense. In 2003 it failed to do so, but the external auditor has ruled that the most recent decision (2002) was to regard them all as a General Expense chargeable over all taxpayers, and that decision still stands unless or until it is changed by another resolution of the Borough Council.

This means that all Fylde residents contribute equally to the cost of concurrent functions. 

Thus St Annes residents contribute to the cost of grounds maintenance in Elswick and vice versa, irrespective of who actually does the work.

To undertake the work in parishes, Fylde Council may contract with a parish to perform the service that the Borough would otherwise have to provide within that parish. It is argued that a parish council - with lower overheads and having less travelling costs - can often do it more cheaply than the Borough can.

So all residents in Fylde fund concurrent services equally, but monies may be paid to individual parishes by the Borough to undertake contracted services undertaken on the Borough's behalf.

This is seen as cost effective and equitable, but is very different from the parish having to raise its own local precept for work in its parish.

The longer-term aim of Fylde Council may be to try and shift responsibility for concurrent functions such as grounds maintenance onto parish councils. As a prelude to this, it is considering 'differential rating'. 

DIFFERENTIAL RATING
This is really just another term for Special Expenses. The aim is to structure Fylde's accounts so the maximum amount is classified as Special Expenses.

(Note: this does not require a parish council to exist in all areas. The Borough Council's functions in Lytham could be classed as Special Expenses and chargeable only over Lytham taxpayers, even if Lytham (or anywhere else) does not have a parish council.

If Fylde implements differential rating, there will be winners and losers.

Typically places with many facilities and not many taxpayers (e.g. Elswick) will lose out and pay more per head in Council Tax, whilst vice versa situations (like Westby with Plumpton) will gain and pay less. 

Depending on what is defined as Special Expenses, St Annes residents would probably lose out. Many of these facilities are provided in support of tourism, not for residents, (mini golf course, promenade and other gardens etc). Thus St Annes' leisure infrastructure (and therefore the service cost) is generally greater than that of a comparable inland town.

One of the key questions for Fylde Council is whether using differential rating will allow it to exclude such expenditure from the capping regime. 

The Borough Council has plans to run 'two sets of books' from April so as to be able to gauge the effect and benefits available to the Borough Council (though perhaps paying less attention to the overall benefits for taxpayers).

CONCLUSIONS
Differential rating may give Fylde Council savings. But it will be very contentious and probably be damaging for St Annes. 

Given the timing, it may also be 'spun' to be associated with the creation of the new parish council and thus bring that body into disrepute. 

Even if implemented, it will still be the Borough's spending and there is some doubt as to whether reclassifying it as Special Expenses will remove it from their capping limit.

So the more likely aim in the longer term is to pass full responsibility for funding (not just the operation) of whatever services can be passed to parishes.

This raises two concerns. Firstly, there is no guarantee that if a parish increases its precept to cover such expenditure that the Borough Council will reduce its expenditure by the same amount. This would leave its taxpayers worse off overall.

Secondly, because the Government gives the County and Borough Councils grants from national taxes and the business rates, in effect it 'subsidises' the Council Tax that they charge.

This means that every £1 spent by the Borough Council costs local Council Taxpayers only 46 pence. (See beginning)

However, every £1 spent by a Parish Council costs those parish taxpayers £1. (because there is no government grant or business rate income).

It follows there would be a very significant real cost increase for taxpayers as this 'subsidy' is not paid to parishes. An expenditure of £100,000 on open space maintenance in St Annes would cost Fylde taxpayers £46,000 but if raised by the parish Council it would cost them £100,000.

Given this situation, one wonders why so much is being spent with consultants and additional accounting time to try to justify it..

Dated: 3 March 2004 

Update: The above percentages were correct at the time of writing. We are told in October 2005 that the proportion of income received by Fylde Council is now 50% from Central Government and 50% from Council Tax

Dated 23 October 2005 


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