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Call for budgets balanced over three years

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Councils should be given new powers to balance their budget over three years rather than just one, a leading thinktank has argued.

The move would give councils the power to invest in services when their income is reduced and recoup monies when income improves, a New Local Government Network (NLGN) report said.

NLGN director Chris Leslie said councils had earned the right to greater fiscal autonomy by demonstrating sound financial management and efficiency savings over the past decade.

He added: “Such flexibilities would not require a giant leap – after all, local authorities currently have their grant funding allocated over a three year period but have to match their income to their expenditure every year.”

“I am not saying that councils would be able to move to a three-year system without any problems, there are certainly some wrinkles that need ironing out but we would like to open the debate.”

The paper,In The Balance, argued that the move would give authorities the ability to give council tax discounts in harder times. They would also gain the ability to retain staff and programmes which would otherwise face termination because of the in-year balance requirement.

Chartered Institute of Public Finance & Accountancy assistant director of local government Alison Scott said of the proposals: “The need to set a balanced budget each year is a key control over local authority expenditure and the advantages and disadvantages would need to be carefully considered.

“For example, what happens if an election occurs within the three years?  Local authorities can currently manage expenditure across years by budgeting to use reserves in one year and then rebuild them in subsequent years.”

London Councils director of local government finance Jo Mennell said that there could be some complications with moving to a three-year cycle, citing council tax being set annually as an example, but she added: “We are certainly in favour of councils being give more financial flexibility.”

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