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LGA capitalisation plea dealt blow  

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Hopes that ministers will loosen rules governing capitalisation appeared to have been dashed, after Andrew Stunell (Lib Dem) insisted “strict control” would be kept on the practice used by councils to fund redundancies.

The junior local government minister said the accountancy practice, which allows councils to use money raised through borrowing or selling assets to fund revenue concerns, still scored as public spending with implications for the deficit reduction programme. It was “therefore important that capitalisation is strictly controlled”.

In a letter to all local authority leaders dated 27 January, he said that full guidance for capitalisation 2011-12 would be issued earlier than in previous years in order to “support local authorities who wish to deliver efficiency savings early through organisational restructuring”.     

Mr Stunell added that government will take into account levels of reserves, as well as authorities’ overall financial position.

“As has been the case in previous years, the government will look at the total reserves for each authority, including both “earmarked” and unallocated reserves, since the extent to which earmarked reserves are firmly committed will vary considerably fom case to case,” he added.

The letter followed the Local Government Association issuing a plea for the £200m cap on council capitalisation to be lifted in its submission to the local government finance settlement consultation  

The LGA claimed “thousands of jobs may be lost and millions of pounds’ worth of services risk being cut because of the government’s decision to limit the ability of councils to spend their own money”.

The lobby group said the £200m amounted to less than 1% of the local government pay bill and is preventing councils from making the best use of scarce resources.

Councils in the eight largest cities outside London alone estimate they will have to lose more than 10,000 posts at a cost of £317m – more than one and a half times the total amount the government has earmarked to help pay for all council redundancies, the LGA said.

LGA vice chairman David Sparks (Lab), said: “With front-loaded cuts, councils need to make rapid workforce reductions. Often, the money to fund these one-off reductions can only be found from capital resources.

“On one hand the government is urging councils to dip into their financial reserves to protect services while on the other hand it is preventing them from spending their own money.”

Around 140,000 local authority posts are expected to be shed next year as a result of the cuts, the LGA said earlier this year.

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