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Small districts 'in danger of becoming unviable'

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Small district councils are in ‘real danger’ of becoming unviable, according to a new study predicting that West Somerset DC’s financial troubles will be replicated in other authorities.

This verdict is delivered in a report release this week by the New Local Government Network and the District Councils’ Network. The study found that districts’ confidence in the capacity of the business rate retention funding system to help them raise income had plunged. Most were now looking instead to the government’s New Homes Bonus to boost income.

Its assessment of district authorities’ financial viability concludes that “a number of smaller districts are in very real danger of becoming unviable”.

West Somerset, which has a population of 35,000, a net expenditure of just £5m and a forecast funding gap of £248,000 by 2014-15, was branded “not viable as a unit of local democracy and governance over the longer term” by the LGA at the end of last year.

NLGN’s report said that “a number of other districts could soon find themselves in a similar position” to West Somerset. Around 8% of districts are of a smiliar size to that authority, with a total service expenditure of less than £20m.

Boston BC had experienced “one of the highest increases in population in the country at 15.8% which is putting a significant strain on the council’s finances”. In another example, the report said West Devon BC “could be financially crippled by the next spending review”.

The study is based on responses from  64  of the 198 chief executives who work for DCN authorities. Almost 60% said the new homes bonus would have the most positive effect on the authorities, in the face of diminishing grant funding. Only 29% named the business rate retention, 11% the community infrastructure levy and 2% the tax increment funding regime.

However, the report noted that enthusiasm about business rate retention dropped between the Autumn and later roundtable discussions as more details about the reform emerged. One chief executive interviewed by NLGN described the reform as “likely to be a damp squib”.

In other findings, NLGN’s research found there was an emphasis on the importance of political leadership in delivering change but also concern that members were not ready to engage with future spending cuts.

Survey results found that 45% of councils officers were not confident of members readiness to deal with budget cuts for 2015-16 spending review period, and the report suggested members closeness to the community and council staff could be a factor. The report also suggested comparisons with neighbouring authorities could help members.

The report, which recommended a number of way forwards for district authorities, also found:

  • Officers were focused on ‘budget, finance and savings’ for the next year, followed by ‘economy and growth’ and ‘service transformation’
  • ‘Local plan’, ‘national policy changes’ and ‘regeneration’ were amongst the lowest priorities
  • Partnership working was felt to have worked best with neighbouring districts, the third sector and the private sector but less well with local enterprise partnerships, parishes, counties and neighbouring unitary councils
  • Asked to rank different approaches to improving services, chief executives rated redesigning services internally or with other public service bodies highly and were least keen on scaling back or outsourcing services

Full report

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