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Capitalisation requests get priority...
Capitalisation requests get priority

By Dan Drillsma-Milgrom, finance reporter

The government has given ground in its battle with local government over recognition of the financial pressures councils face to implement equal pay.

The Department for Communities & Local Government has announced measures to ease the burden of meeting the back-pay claims arising from single-status agreements.

It will give back-pay claims priority when assessing councils' requests to be allowed to capitalise expenditure - this means borrowing money or using cash from asset sales to pay for one-off charges that would normally be paid for from the revenue account.

It has also changed the timetable to better fit with councils' budgeting processes.

Finance directors are usually unable to capitalise as it threatens the government's fiscal rule that the public sector can only borrow to invest. With many councils facing bills in excess of£10m, mainly from women who have been historically underpaid, capitalisation has been seen as a potential solution.

But the size of the problem could threaten macroeconomic stability, the Treasury claims. Last year, the DCLG received 39 applications to capitalise for back-pay claims amounting to more than£320m. Less than half this amount was approved.

Keith Beaumont, programme manager at the Local Government Association, said he was hopeful the limit might be raised.

'The language they use seems to give a glimmer of hope there might be more than just£200m available this year,' he said. 'Last year the DCLG treated back-pay claims in the same way as claims for redundancy payments and cleaning up contaminated land and scaled them back.'

The deadline for applications has been brought forward from December to May. Councils will now learn how much they can capitalise in September.

Mick Hayward, finance director at Medway Council, urged caution, saying that the limited amount councils were able to capitalise remained one of the last areas of central government control over financial policy.

Medway had its application to use capital receipts to pay for claims from social services staff refused last year.

'The arguments about jeopardising the government's fiscal rules is still in there and it does seem to conflict with the principle of giving us more flexibility,' he said.

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