The politics of setting the Budget
"It's clearly a Budget. It's got a lot of numbers in it" – George W. Bush
As the days shorten and the temperature drops, most local authorities have one thing above all other on their mind, which is the setting of the annual budget. Over the years since at least 2010, local authorities have had to budget more and more tightly and have taken a massive amount out of their budgets. Indeed, many have commented that if they had been told in 2010 to take out the amount of money that they have already done they would have thought it was impossible. But it has happened.
The trouble is that we are not yet at the end of austerity and councils are bracing themselves for the results of the Comprehensive Spending Review later this Autumn, with the expectation that they will have to face even further cuts to those they have already budgeted for. Local authorities are already struggling with what is a 40 per cent cut on average to their budgets. With the Chancellor asking a number of departments, including DCLG, to draw up plans which comprise both a 25 per cent and a 40 per cent cut, it is clear that there are further austerity measures to come. The LGA says that councils have already delivered £10bn worth of savings in the three years from 2011 to 2014 but will have to find the same savings again in the next two years. The LGA's future funding output model predicts that the amount of money which is available to deliver some popular local services will shrink by 66% by 2020.
Whilst councils have risen to the challenge and are setting in place various strategies to help them cope with the pressures whilst continuing to deliver services, looking at ways in which they can raise income or provide income through a far more commercial approach, there are also rumours of councillors feeling that they will not be able to set a budget this year because of the serious financial pressures they are under.
At the SOLACE conference in October there were suggestions that members in some councils will favour either deliberately not setting any budget at all or will set an unlawful budget. Of course, whether it ever comes to this is another matter. However, what is the position when a council looks as though it might be unwilling to set a budget?
The provisions of the Local Government Finance Act 1992 (LGFA 1992) set out what the council has to base its budget calculations upon, and require the council to set a balance budget with regard to the advice of its Chief Finance Officer (section 151). The setting of the budget is a function reserved to full Council, who will consider the draft budget which has been prepared by the Executive (in a Leader and Cabinet or Elected Mayor model). Once the budget has been agreed by full Council the Executive cannot make any decisions which conflict with it, although virements and year-in-year changes can be made in accordance with the council's financial regulations.
Section 30(6) LGFA 1992 provides that the council has got to set its budget before 11 March in the financial year preceding the one in respect of which the budget is set, although failure to set a budget within the deadline does not in itself invalidate that budget. Such delay, however, may have significant financial administrative and legal implications, including potentially an individual liability for those members who contributed to the failure to set the budget. If a budget is not set, s.66 LGFA 1992 provides that the failure or delay to or in setting the council tax can only be challenged by an application for judicial review, with either the Secretary of State or any other person with sufficient interest (which potentially could include a council taxpayer) able to apply.
However, budget set or not, the council has a legal duty to provide a range of statutory services and these duties are not absolved if the budget is set late. Most councils must also consider the impact on precepting authorities such as the Fire Service and the Police, to whom the council will have to pay the monies due whether or not it has collected them through council tax. Furthermore, a delay in setting the budget may well affect the council's ability to enter into any new agreements unless the budget is agreed as otherwise these would be potentially unlawful as unfunded commitments. Councils also have increasingly important financial and corporate governance reputations to keep strong and the failure to set a council tax, or even informal references to a potential failure to set a council tax, would be likely to have a significant adverse impact on the council's reputation locally and nationally in terms of investor confidence.
If members decide that they will not set the council tax, there are likely to be some liability issues. Members have to abide by their council's Code of Conduct and, as members have an active duty to ensure that the council sets a lawful budget, voting against those proposals repeatedly knowing that the result will be no lawful budget is almost certainly incompatible with their obligations under the Code as it is bound to bring the council into disrepute. Furthermore, although surcharge has long since been abolished, if a councillor's wilful misconduct in refusing to set the budget is found to have caused a financial loss to the council they may, be liable to make good such loss. To get such a finding, it would have to be proved that the members were acting deliberately or recklessly and in a way which involved persistent failure to facilitate the setting of a lawful budget.
It is always worth considering that in such a situation the Secretary of State could intervene and direct the council to take any action that he considers necessary or expedient to secure compliance with the requirements of Part 1 of the Local Government Act 1999, which would include setting a budget by a specified date. In such a situation it would be unlikely that the Secretary of State would actually set the budget but instead he would require the council to do so. However, such a direction is very much a measure of last resort and it would itself be challengeable by way of judicial review.
The most pertinent case which applies to this is R v Hackney LBC v Fleming  RVR 182 where the question of not setting a budget was considered by Woolf LJ. He suggested that, whilst the facts of each case must be examined, in the "absence of a reasonable explanation, not to make a rate by the beginning of a financial year or within a reasonable time thereafter – I had in mind weeks rather than months - would be unreasonable and therefore, in breach of duty".
The result, therefore, is that the council as a corporate body and the members, both individually and collectively, have a fiduciary duty to council taxpayers to avoid things that would result in loss of revenue or failure to deliver services and they have the moral and democratic obligation to set the council's budget on behalf of the electorate. There is always going to be a tension between members' desire to vote for the right decision and the legal obligation to set a lawful budget, and this has just been brought into sharp relief by the financial considerations around at present.
Given the split in roles since the Local Government Act 2000, what would be done if either the Executive refused to propose a budget to full Council, or if Council, with a proposed budget from the Executive refused to accept it?
The bottom line is that the Executive cannot thwart the duty of Council to set a lawful budget by refusing to recommend one. Accordingly, where the Executive refuse point blank to comply with their duty to recommend a draft budget to Council, the practical thing to do would be for the Section 151 Officer's report to the Executive to be sent to Council. This is an extreme situation as it would be seen as a fairly disastrous loss of control if the Cabinet were unable to recommend a budget.
Alternatively, if it looks as though the draft budget proposed by the Executive will not be agreed by Council, the practical approach is to remind members of their duty to facilitate rather than frustrate the setting of a lawful budget with a view to trying to reach comprise and agreement beforehand. It should not be forgotten that if the Council refuses to accept the draft budget proposed by the Executive, they have to give the Leader five days in which to consider the alternative proposals put forward by the Council and come back to Council on a further date to consider the proposals.
Disagreement when the budget comes to full Council needs to be resolved. This could involve introducing short adjournments or adjournments to another day or, if this is unlikely to resolve the impasse and the deadline is getting close, officers could advise that members first identify those amendments which have cross party support and can be voted on. Subsequently, with the substantive vote officers could recommend that those members who support the proposals should vote in favour and those members who do not support the proposals abstain.
Remind members that the most important thing is to ensure that the Council does set a local budget to avoid the damaging legal, financial and practical consequences discussed above, to keep the setting of local tax local and to preserve the Council's reputation. Both the Monitoring Officer and the Section 151 officer may need to consider the use of their formal legal powers to report in such situation. However, the better thing to do is not to get to that situation. But if you do, I hope the advice and practical steps outlined above will help.