The truth behind Labour’s claimed £21million “black hole”

The truth behind Labour’s claimed £21million “black hole”

The new Labour administration for Birmingham City Council has excitedly released a press statement claiming to have found a £21million ‘black hole’ in this years budget. See http://birminghamnewsroom.com/2012/07/council-faces-budget-%E2%80%98black-hole%E2%80%99/

Any political party taking over an administration will go out of their way to rubbish the previous administration. So first you have to apply the “they would say that, wouldn’t they” filter.

What the press release doesn’t say is the following:

1)      The new administration is withholding the final accounts for the financial year 2011/12. They should have been made public at the end of June. It is safe to assume that these accounts are not to the liking of the Labour administration, since they most likely show a balanced budget by the previous administration.

2)      The claimed £21million ‘black hole’ is really early year ‘financial pressures’ and on a par with ‘month 2’ financial pressures seen in recent years.

Just to explain these monthly ‘financial pressures’. Each month, the Cabinet (or indeed any large corporate organisation) produces a financial report giving an update on how the organisation is keeping within its budget. This report will explain where the organisation is likely to overspend by the end of the financial year – these are ‘financial pressures’.  The report will most likely explain what measures are in place to reduce that financial pressure. This part and parcel of basic budgetary control that any organisation will do. The objective is to reduce all the financial pressures down to zero by the end of financial year, so that the annual budget balances.

So let’s compare how Albert’s £21million financial pressure compares to previous year sand how  the final Council budget balanced? See the below table

Financial year	Date the Cabinet report was presented	Month 2 revenue financial pressure (£millions)	Date the Cabinet report for year end spending was presented	Revenue Overspend (underspend) at the end of Month 12 (£millions)
2012/13	16/07/2012	21.3
2011/12	25/07/2011	14.0		Withheld
2010/11	12/07/2010	16.9	27/06/2011	(26.9)
2009/10	27/07/2009	19.7	28/06/2010	(25.5)
2008/09	28/07/2008	0.6	29/06/2009	0.7
2007/08	30/07/2007	4.1	23/06/2008	1.7
2006/07	31/07/2006	1.8	25/06/2007	(0.2)
2005/06	25/07/2005	3.4	26/06/2006	(6.4)
2004/05	13/09/2004	21.9 (month 3 pressure)	27/06/2005	(4.8)
2003/04			28/06/2004	(7.6)

As you will see above, the Council had a financial pressure of £21.9million in month 2 in 2004/05, yet by the end of the year had reduced this to an underspend of £4.8million.

Also, the Council had a financial pressure of £19.73million in month 2 in 2009/10, yet by the end of the year had reduced this to an underspend of £25.5million.

So as you can see a £21million financial pressure in month 2 is nothing unusual. We’ve had similar pressures in other years and they’ve been reduced to zero. Yes, the £21million pressure will require alot of work to reduce.

There are three ways of dealing with this £21million financial pressure, these being:

a)      Look at ways of making the Council more efficient

b)      Look at new ways of raising income for the Council, that does not involve raising the Council tax.

c)       Close down services that the Council provides

d)      Raise Council Tax above inflation.

The previous administration dealt with their financial pressures by using both options (a) and (b). Past history of Albert Bore’s last administration in Birmingham shows that he’ll go for options (c) and (d).