800 Words (9 minutes reading time) by Colin Weatherby

I was reading the latest Local Government Information Unit (LGIU) newsletter from the UK and the news item in the image above caught my attention. Although the cause of the problem is central government cutting funding to councils, not imposition of a rate cap, it has the same effect on council finances and reinforces the view I expressed in my posts about the effects of the rate cap (‘Il comune povero- ‘The poor municipality’ and ‘Rate Capping – the final words (from our future))’. Councils in Victorian can respond by trying to improve current services and increase revenue, find efficiencies and reduce waste in operations, and they will still be unable to meet community needs and expectations within their available resources.

In Victoria, councils cannot issue a section 114, which in the UK means that all spending, apart from on protecting vulnerable people and providing statutory services, will be suspended. Instead, the Victorian government sends in Monitors to oversee council decisions, and then, if the council doesn’t respond as the State requires, they can dismiss the council and appoint Administrators to run the council. In the past, this has resulted in decisions being made by the unelected Administrators to sell community assets, cut services and make whatever changes they think are necessary to get the council back in the black. This tends not to meet community needs and expectations either.

It sounds as though Nottingham City Council did everything it could but were unable to cope with reducing revenues and increasing costs. 

“There are fundamental systemic issues with the local government finance system that have resulted in an increasing number of councils reaching breaking point.”

Sir Stephen Houghton, Chair of the Special Interest Group of Municipal Authorities.

The Special Interest Group of Municipal Authorities said Nottingham city council’s spending power was 28% lower in real terms compared with 2010-11. The main problem has been expenditure, impacted by inflation and increasing demand for services, which has exceeded revenues that have been depleted by years of austerity measures. According to The Guardian, the immediate future for Nottingham includes ‘redundancies, job freezes, more painful service cuts, and possibly asset sales’ . It is the fourth council in the last 12 months to issue a section 114 notice.

“My concern is that there is a wave of councils that will effectively return the town hall keys back to the government, because there is just no way out of this.”

Shaun Davies, Chair of the Local Government Association.

How can we avoid the same fate for councils in Victoria?

The spending gap from the rate cap is starting to grow rapidly as high inflation increases capital works and service delivery costs, and the rapidly increasing costs of living in Victoria create hardship for people in paying their rates. Council cash flows are already being impacted. Most councils are stopping or delaying capital works projects. Some are talking about service cuts. All are under financial pressure, with the most affected in Melbourne’s growth corridors and rural areas.

What will councils do to avoid being dismissed because they can’t make ends meet?

Simple cost cutting and ramping up fines and user fees are unlikely to be effective. As discussed in my previous post, councils need to think differently. They need to start working with communities to discuss the situation and together work out better ways to meet community needs and expectations. The problem cannot be solved by councils trying to do things better, they need to find better things to do.

The change required is transformative, not reformative.