There’s a Hole in your Budget, Dear Terry, Dear Terry*.
While some of you were doing interesting things, like watching paint dry, some of us were reflecting upon the activities of the Overview and Scrutiny Commission.
It was revealed by Cllr Terry Paul that there is a gap in this year’s budget. That is to say, they currently plan to spend more than they have got coming in!
That is not good, but of itself it is not disastrous. What you need is a plan to work your way out of the hole.
It is however, an urgent concern.
To realise say, £1m worth of savings this year, that can be done by making a decision on the 1st April. If, however the same decision is made on 1st October it will mean that savings with an annualised cost of £2m will need to be made. Effectively you have 50% of the time to save 100% of the cost. (If savings are made by redundancies, the decision to delay will double the number of jobs threatened.)
This is where it does begin to look like a problem. Not least because Newham are searching for considerably more than £2m worth of savings.
Taxing and Cutting
The problems were exposed when members asked about the plan to balance the budget. It seems that officers have decided that savings will be made over a three-year period. Unfortunately, they have not been very good at making savings in Y1. The Finance Director let members know that in Y1 they had failed to save £11,833m of the planned cuts. This was innocently referred to as “slippage”.
It was not possible to determine whether any efficiency savings had been made. We think not. Most of the “savings” referred to appear to mean increases in council taxes and taxes on vehicles. These have brought in additional revenue of about £4m for the current year and will rise when the Covid discount on parking charges expires and in the event of further council tax rises.
In the current financial year, they have committed to saving £6,432m and £11,633m.
This makes a total of £29,930m savings to find.
They will try to find some of it this year, but it is inevitable that this level of cuts will have to be spread across two or more years. That’s not so bad, it could end up as somebody else’s problem.
That was not all of the bad news. Cllr Paul just happened to mention that there was a hole in the budget to the tune of £12m. This is caused by ‘overspend’. Another way to look at this is that Mayor, her Cabinet Member for Finance, the Chief Exec and the Director of Finance have all failed to control their spending.
They have to find a cumulative £41m AND they have to plug the repeated overspends. A failure to cap the overspends will ensure that they are never able to control their spending. There is little evidence that they are capable of either capping their expenditure or generating savings.
We regret that we can see no way this can be done in the present circumstances without significant job losses. Newham should now be talking to the unions. We are not aware of whether the unions have been told and whether they are amenable. We suspect that the answer is ‘no’ to both questions.
It looks like a period of tax increases and job losses.
This is the sort of incompetence that sees public sector workers come out on strike and gets mayors and councillors replaced by commissioners.
There seem to be a number of areas in which the council is experiencing budgetary problems. They appear to have made no efficiency savings preferring the salami model of cuts as an alternative. Each department has been told to make savings, giving rise to ‘paper savings’ that are either double counted or do not result in a reduced level of spending.
Overspends
Rather quietly they have decided that, in the words of one councillor, children and families with no recourse to public funds are in accommodation that is “too lavish”. Quite apart from the moral/political question here, there is the purely financial matter to consider. They are relying on this to save money, but they haven’t moved anybody yet. Nor does it appear that they have any plans to. These are paper savings!
Newham intended to make cuts of £1.5m in the NRPF budget by moving people into cheaper accommodation. Instead of this they have overspent by £1.3m because of a lack of affordable housing options.
They have overspent on provision for care leavers to the tune of a further £1.3m.
A similar attitude seems to have been adopted for savings in the temporary accommodation budget which is currently overspent to the tune of £3.6m. (We have looked at Newham’s record on temporary accommodation; under Fiaz there has been an eight-fold increase in the number of families with children in B&Bs.) It is almost as if the finance department and Children’s Services are not talking to each other. This is not merely a finance problem. It needs different parts of the council to work together to generate a solution.
New Problems
They have noted the difficulties that will be experienced moving tenants from Housing Benefit (which was paid directly to the council) to Universal Credit, (which isn’t). Apart from the additional cost of staff required to collect and chase errant tenants there is the problem of tenants neglecting to pay their rent or using the council as an informal lender, knowing that they can build up substantial arrears before they face the threat of eviction.
Savings
Thirdly they are seeking to save money on procurement. There will be a number of contracts which come up for renewal. They propose to make savings in the renegotiation of these. We wish them luck.
Cuts
They don’t say it, but given the fight to save free school meals this year, it can only be a matter of time before Mayor Fiaz decides that she needs the money to plug her overspends.
Income Generation
Council Tax has risen by 20% in three years. Parking charges have been hiked and charges of up to £200 have been introduced for the first vehicle in a household. Residents in a Band D property can expect to pay an additional £500 pa in tax courtesy of Mayor Fiaz.
If we have stated any of this incorrectly, we would invite Mayor Fiaz and/or Cllr Paul to write and let us know. We are always happy to correct mistakes. But we are pretty confident. We are, after all, using the figures they have provided.
Let’s make some suggestions as to how Newham might claw itself back from the precipice:
Council Tax Collection. What we don’t know is whether the council is basing its income projections on a 100% collection rate of council tax, or on 96% (the collection rate under Wales) or on 89%, (the current collection rate). Clearly, if they are assuming a collection rate of 100% but the actual collection rate is some 89%, then their projections will be out by another £8.25m. (This calculation is based upon a value of 1% of council tax being £750,000, 11x£750k). If Cllr Paul and She-Who-Must-Be-Obeyed are serious about addressing the deficit in their budget there is a two-part solution to bringing down the level swiftly. (i) Immediately put in place measures to ensure that council tax collection rates are improved, and (ii) pursue those who have not paid and bring the funds that are owed back into the council coffers. Or they could ignore it and blame the Tories.
As we have suggested before, take a more determined attitude with regard to the use of the existing assets that the borough owns, most importantly it’s property portfolio. The attitude of the authority towards generating an income from its assets can be illustrated by reference to the debacle over Canning Town Library.
In short, the authority lost £1m in private sector investment in the building; lost 20 jobs for local people; and lost £494k pa in a mix of continued security costs and lost rent and rates. Instead of the building earning the council over £1m in three years, it has cost them over £400k to manage an empty building.
The mayor displayed an almost criminal lack of backbone when she capitulated in the face of opposition from a dozen Labour activists who wanted a community centre on the site. Right next door to the community centre that went bust under Community Links and opposite the brand-new community centre built by the council.
The gesture politics that the mayor indulges has a real effect on the people who pay her wages. The financial crisis that Newham finds itself in is largely of the mayor’s own making.
Newham has a significant unutilised property portfolio. Use it!
Under the Wales regime, Newham had begun a transformation programme, starting was arguably the biggest move in the country from council control to mutuals & co-ops. Many of these were Public/Mutual partnerships which both saved money for the council and generated income. One of the first acts of ideological pique that Mayor Fiaz announced when she took office was the termination of the scheme. Which is a shame because they managed to bring in revenue savings of £27m annually under Wales and were set to bring more. They also created a new income stream for Newham, that was projected at £5m pa from 2019, an income stream that Fiaz simply turned off.
If Cllr Paul or the Mayor are realistic about plugging the hole in their finances, the most important thing that they can do is restart the mutual programme. Alas, this is unlikely to be as simple as it sounds. Years of work went into building the teams and their capacity. The skills they developed and the institutional memory has, we suspect, been lost.
Whilst councils across London got control of their spending on agency workers, Newham has gone in the other direction. There is nothing wrong with bringing in agency staff for short periods to cover while new staff are recruited. What is wrong is relying on agency staff to cover your core work. There are two main reasons for this. They cost so much more! And you lose the consistency of support when these staff are engaged in work, supporting people. Under Mayor Fiaz, Newham has massively increased its reliance on agency workers. Again, this is not simply a Finance problem, the mayor needs to understand why departments cannot keep or recruit staff and take action accordingly. Or she could continue to ignore the problem, as she seems to have done over the last three years.
5. It will be politically painful, but it is far easier to cut programmes which have not yet started than cut services that people already rely on. The mayor has instituted a number of virtuous sounding vanity projects. Turn off the tap before you are overwhelmed in debt. If the mayor wishes us to give her details, she has only to ask. If we don’t say which programmes we are thinking of, she has the opportunity to save face and make the necessary savings and claim the credit. We don’t expect her to do so, but the offer is there. If she chooses to continue with her pet programmes we will happily expose those projects which owe more to her vanity than to the needs of the borough.
6. The directorate has bloated since Wales’ departure and with this there appears to be a corresponding increase in the salaries paid to senior staff. More of them and each at a greater unit cost. This doesn’t give residents confidence in their elected leaders.
7. Our last suggestion will not bring in much money, but it will be an important symbolic act to maintain trust with the public. Think New Zealand.
Our recommendation is that the Mayor and those councillors receiving special responsibility allowances voluntarily forgo 25% of their council income for the last six months of the year (Oct 2021-March 2022). It will save some money, but not enough to dent the gaping hole that Newham now finds itself in.
What it will do is signal to Newham staff and to the public that when their jobs are sacrificed and their services are cut, leading Labour councillors are going to share the pain. This is your chance to prove that you are not in this for the gravy train. Mayor Fiaz could then market herself as a British Jacinda Ardern.
Alternatively, keep pocketing the cash while the staff of Newham Council and the residents pay the price.
It was clear that the early strategy of backing Corbyn and waiting for a financial windfall from a Corbyn led government has failed. The question now is, do the mayor and her cabinet colleagues have the political courage to take what will be hard and possibly unpalatable decisions to offset the looming financial crisis?
STOP PRESS: It did appear at the end of the Overview and Scrutiny meeting that Cllr Paul invited Cllr Hudson, the former Cabinet Member for Finance under Wales, to meet with him and the mayor to discuss how the books might be balanced. This might be an outbreak of sanity. We emphasise, might.
* Whilst the original inspiration for this title came from the Harry Belafonte song, a more appropriate progenitor is actually this piece from Flanders and Swann.