Bucks County Council's Finances
1.BCC performs two basic functions for the residents of the county: it delivers services in specific areas (including health, education, transport and children’s’ services) and it manages a portfolio of county assets that includes infrastructure and other long term commitments.
2. In both areas, it is performing poorly. BCC has been overspending on services (running a deficit) year on year on year, despite making significant cuts.
3. In 2015/6 it overspent by over £21million: in 2014/ it overspent by over £40million.
4. At the same time, BCC has consistently run down the net asset position of the county: between 2011 and 2015 the balance sheet saw a reduction from £660million to £450million. The year to March 2016 showed a slight balance sheet improvement (to £517million), but this was driven by a technical adjustments and masks a significant reduction in ‘useable reserves’.
5. On 31st May, BCC will have to pay out £180 million which is the final installment of its contribution to the Energy from Waste (EfW) disposal facility at Greatmoor. This facility, built at BCC expense, will be run by FCC Environment for 30 years and promises to deliver net savings of £5million per year in the cost of processing waste. However, these savings will depend on the facility providing economies of scale by filling around 2/3 of its capacity with waste from outside the county, something which many experts doubt. Up to £90million of the £180million payment due on May 31st will be funded by additional borrowing; the rest will come from reductions in reserves.
6. BCC has been supportive of the central government’s austerity programs, accepting additional reductions in the revenue support grant it receives every year. The reductions in 2014/15 and 2015/16 were 7% and 13.5% respectively. The reduction for the current year is expected to be 20.5% and close to 25% in each of the next three years.
7. BCC has been seeking to plug the gap in its operating budget by speculative investment i.e. by using capital reserves and borrowed capital to invest in commercial activities that will generate a profit. This approach allows them to sidestep regulations that prohibit the use of capital assets to fund operating costs.
8. Examples of these investments include the EfW plant and the recent acquisition of an Equestrian Centre. In both these cases, the ‘yield’ (percentage of savings or profit) is less than the cost of borrowing, so the net impact will be reductions in BCC’s balance sheet.
9. The BCC portfolio that most obviously demonstrates the impact of these policies on our county is transport, and in particular our highway network. By BCC’s own calculations, the backlog in road maintenance currently stands somewhere in the range £75million to £150million. Each year, net new damage to the highway network is in the range £10million - £14million, depending on the severity of the winter. Over recent years, net spending on road maintenance has been around £15million and this is set to fall to £10 million from next year. At the current rate of spend, we are taking between £1million and £5milion off the backlog each year: in other words, it will take us between 15 and 150 years to catch up. At the new rate of spend, we will never catch up.
10. A national re-evaluation of infrastructure assets will impact BCC by revaluing the highway network from £340million to £9.1billion. This will provide an equity boost to the balance sheet, making it easier for BCC to borrow (and so continue on its current strategy).
Our opinion of BCC's financial management
1. BCC is financially incompetent – grossly so. It has progressively run down the assets of the county, while also overseeing the biggest reductions in services we’ve seen in 60 years.
2. The Government’s creative accounting in re-evaluating the roads allows the Council to drastically lower its ratio of overspend to assets. However the evaluation is purely notional – how the asset of a road network could ever be “realised” is impossible to guess.
3. Speculating with borrowings, which are secured on a rapidly degrading highway system, will saddle future generations with massive debts. It is reckless. Comparisons with the Enron debacle of 15 years ago are hard to avoid.
4. BCC is irresponsible in its management of capital. Among the most critical assets backed by its shrinking (but soon to be boosted by the highway revaluation) balance sheet is BCC’s pension fund. The value of BCC’s pension fund liability currently exceeds the net balance sheet position. It will be of little consolation to BCC staff, past and present, to know that their pension fund is supported by a notional revaluation of the A413.
5. BCC’s track record on making sound investments is poor. For example, the business case for investing in the EfW plant – (spending £180 million now to save £150 million over 30 years) does not stack up. Meanwhile Bucks will become the dustbin for the region. New borrowing is at 3% interest, existing borrowing (which totaled £164million in March 2016) is at an average interest rate of nearly 6% - the business plan for the EfW plant represents a return of 2.7% at best – whichever way you look at it, BCC would have been better using its reserves to pay down existing debt.
6. Risks have been very poorly considered – for example, experts in the waste disposal and recycling sector expect the UK to have a surplus in incineration capacity by 2019. There is a high probability that extra capacity expected to be filled from out of county will never be filled, which will eliminate the economies of scale and so the savings to BCC. Were that to happen, we will have constructed a £180million white elephant - money that could have been invested in core services and highway maintenance.
7. We do not believe it makes sense for BCC to act as though it is an investment bank or hedge fund manager. It lacks the capacity and expertise in this area and is contrary to current policies that devolve risk to businesses.
8. We believe that BCCs role is to represent voters, manage our infrastructure and provide services, not to undertake risky speculation with the county’s scarce resources.
What the Labour Party would do
1. We do not believe the steady removal of the Government grant is justified. This is part of the Government’s austerity cuts which are proving to be so damaging to Bucks residents and to our economy. The current BCC cabinet has been far too accepting and its reward for doing so has been deeper cuts. BCC should be working for us, not to accelerate central government policies. The Labour Party nationally and in the County will continue to call for an alternative economic approach.
2. We would call for a national re-evaluation of residential property (last carried out in 1991) so that Council tax would be based on current values of property and fairer.
3. We would push to extend the bands for Council tax beyond Band H (currently the highest band). Bucks is a prosperous county and has a disproportionately high share of very expensive properties. Nationally, 3% of properties are in band G (valued in the range £160,000 to £320,000 in 1991) and 1% are band H (valued at more than £320,000 in 1991). In Bucks, 21% are band G and 5% Band H. The council tax paid on a property valued at £320,000 in 1991 and one valued at more than £10million in 1991 is the same.
4. We would propose to follow the lead of some Scottish councils and introduce one or more bands above band H. We would increase Council tax for the new higher bands and raise more revenue.
5. We would not invest purely for the sake of providing an income stream which could then only be justified by requiring high rates of return and therefore would be high risk. In other words, we would not speculate or gamble with taxpayers’ money. We would ensure any investments we make were aligned with the priorities of county residents, so they deliver improvements in core services
6. In particular, we would invest in social housing to provide vital housing for people currently struggling to survive. We will ensure that our plans deliver the housing required at affordable rents and that the investments include all the broader costs of education, healthcare and transport for the residents concerned. In doing so, we will generate additional revenue to fund core services and begin a strategic rebuilding of the county’s balance sheet at the same time.