Budget questions answered

THE City Council sets its budget tonight. Here we answer some of the questions about the budget.

Why does the Liverpool rely on the Government for funding?

Liverpool City Council is funded in three main ways:

• Government funding – 76% of total
• Council Tax – 9% of total
• Other fees and charges 15% of total.

The amount councils receives from each of these sources varies due to a number of reasons but cities where there are higher levels of deprivation – where there are higher numbers of poor people – received higher government grants in the past.

These areas also tend to have more houses in the lower Council Tax bands (bands A and B) because the value of homes are lower. In Liverpool, the vast majority of homes are in bands A and B (76%) but nationally this is much lower (44%). This means more wealthy areas in the country bring in much more money through Council Tax than poorer ones.

Government funding traditionally tried to redress that balance and ensure those with less money from other sources received a higher level of money from the Government. However, when the Government made its funding cuts those areas with higher levels of government funding were the ones most affected. According to a recent study by Newcastle City Council, Liverpool’s cuts were the highest in the country.

Isn’t the City Council owed a lot of money in unpaid Council Tax?

Liverpool City Council’s Council Tax annual collection rate is as good as other large cities, at around 96 per cent. However, unlike many other councils, we do not routinely write off old debts which means that the amount of Council Tax we are owed appears higher than other councils at first glance.

Most councils write off uncollected Council Tax after four years. In Liverpool, if it remains cost effective for us to continue to chase these debts, we continue to do so. In last year alone we brought in £8 million in historic Council Tax arrears and more than £300,000 of Poll Tax debt, which was then invested in services. This is money that the council would not otherwise have had. 

Why don’t you cut the number of staff and managers to save money?

The senior management team has been halved and performance related pay has been abolished, saving a total of £6 million per year.

We have cut the number of business units from 74 to 27 and reduced the size of our workforce by 1,600 through a voluntary severance scheme.

We are currently going through more significant budget cuts but it is impossible to say what impact this will have on our staffing levels at this stage.

Why don’t you dip into your reserves to cover the gap?

In laymen’s terms, reserves are the City Council’s equivalent of your household savings account.

The city council currently has reserves of £111m (known as earmarked reserves) – but there are strict financial regulations on how we can spend this and much of the money is held for very specific purposes. For example we hold nearly £8m insurance reserves, and this saves us a lot of money as it means we don’t need to pay for insurance premiums, which would be much more expensive.

A further £25m (5% of our net budget) is currently held as a general reserve for emergencies and unforeseen circumstances. The Government and financial regulators tell us to hold this money.

We also hold an additional reserve of £33m on behalf of schools but this is not the city council’s money to use. The Council simply holds the money for schools.

The total amount in reserves will halve over the next three years as we pay for things we have already committed to. Councils are not allowed to use reserves to plug holes in the budget as once it is spent it is gone altogether – and if we did use our reserves it would only fund our services for only a matter of weeks.

Our “earmarked reserves” are due to reduce to £37m by 2016/17 and our general reserves – the money the Government and financial regulators tell his to hold – will fall to £17.6m over the same period. This general reserve represents 4.4% of our total budget.

We can only top reserves up by using our day to day funding or through providing for future obligations. Because the bulk of the money we have comes from the Government and this has been halved, we will have less opportunity to top up reserves in the future. This will make it even more difficult for the Council to plan financially for future liabilities.

You’ve recently announced that you’ve bought Everton FC’s training ground and the Cunard Building. How can you afford to do that?

We have a scheme called Invest to Earn – if we can identify an opportunity that will bring in extra funding for the Council we will consider investing in it, in order to give ourselves more money to invest in services.

The council is not allowed to borrow money to pay for day to day services, but we can invest in things which will make us a return.

The council will only invest in schemes when it is confident it will make a return, and the risk is minimal.

The Giants, the International Festival of Business and other events. How can you afford to put on events like these if you are making cuts?

It is really important to continue to attract visitors and business to the city – as this will help to create jobs and investment in the hospitality and tourism sector. The Council receives no direct benefit or money from these ventures but the economic impact to the city is vital to the continued growth of Liverpool. We simply cannot shut up shop on these types of events because of the cuts – we need to ensure that Liverpool has a bright future and that we are firmly placed on the national and international map.

 However, these events are paid for in the main through attracting funding from other sources and through sponsorship. Our main investment is the time our staff spend in delivering them.

When you look at the results they can achieve, we think this is time well spent. In 2012, Sea Odyssey attracted 800,000 people into Liverpool and independent research showed that they spent an additional £32m in the local economy.