Councils hoard £1.4bn rather than slash taxes

Published on Sunday 5 February 2006 01:10

COUNCILS which are imposing tax rises of up to 7% this spring have built up hidden reserves of £1.4bn in their bank accounts, which could be used to cut bills, Scotland on Sunday can reveal.

The vast sum is double that held by local authorities when Labour came to power in 1997, yet councils are still insisting they have to put up taxes to balance their books.

They claim ministers are not giving them enough cash, and say it is therefore a straight choice between raising council tax or cutting spending on schools, transport and social work.

But in an interview with Scotland on Sunday, finance minister Tom McCabe launched a fierce counter-assault on the councils, slamming their "outrageous" financial incompetence, which he says is to blame for the current cash crisis.

He singles out finance chiefs in many of Scotland's 32 local authorities, claiming many of them are not worth their six-figure salaries and simply sit back waiting for "someone to wave a magic wand."

McCabe, himself a former council leader, is now demanding some of the cash councils have squirrelled away is used to offset tax rises for homeowners.

A large portion of the reserves have already been allocated for future projects and for pension payments. However, council chiefs have now admitted around a quarter is 'unallocated', and could easily be used to offset tax rises.

McCabe said that 45m would help keep council tax rises at 2.5%. He said: "Why do you hold a reserve? It is to take account of times when things are tough."

He was particularly scathing over the way councils have handled new equal pay legislation, which they claim could cost them up to 560m to implement. It was introduced in 1999 and all the new pay scales for women must now be back-dated to that time.

Council chiefs were recently hauled before MSPs to explain why they need such an exorbitant sum to pay for the scheme. It was originally intended to be cost neutral but bills have soared because councils have failed to deal with it sooner.

McCabe said: "Some of the evidence from local authorities was outrageous. It is remarkable. If you were a business or a corporate entity reporting to shareholders that it would need another 500m, questions would be asked.

"We are talking about professionals in councils here who are paid salaries in excess of 100,000. There are serious questions politically and professionally over why they allowed this kind of commitment to grow and grow and not take action sooner."

McCabe issued an explicit warning that if councils failed to sort out their act, ministers would step in to carry out reforms for them.

He said: "Council leaders have experienced budget increases which have been unprecedented in recent years. They are now delivering very relevant services to people but they are continuing with old-fashioned rhetoric at the same time.

"At some point we are going to have to get a much more mature way of advancing the argument or people are going to have to talk about how we alter the existing model."

Asked whether he would consider radical plans such as merging councils to cut costs, McCabe said: "I would like to go as far as possible in reforming public services, not just local government."

However, council chiefs insist they are faced with a stark choice of either increasing taxes or cutting services. They are now warning that in 2007, average tax rises will reach 6%.

The Confederation of Scottish Local Authorities hit back at McCabe. A spokeswoman said: "Councils have to keep a general reserve as a contingency fund. As any business knows, you need to have something to ensure you don't go bankrupt."

The figures on reserves show that since Labour came to power in 1997, Council reserves have shot up by more than 100%. In 1997, 691m was kept back at the end of the year. In 2005, the figure was 1.42bn.