Good news for local government as capitalisation budget increased by half

There was some good news for local government yesterday with the announcement that the capitalisation budget is being increased from £200m to £300m for 2011-12.

Since the £200m figure was set in autumn spending settlement, Liberal Democrats in local government and also ministers such as Danny Alexander and Andrew Stunell have been pushing hard for an increase – with the result being yesterday’s news.

Capitalisation is a technical financial measure but in brief it allows councils more flexibility in their financial decisions. It is the process of letting revenue costs be treated as capital expenditure in limited circumstances, the primary advantages of which are that capital expenditure can be covered by income from a wider range of sources (e.g. borrowing or capital receipts from the sale of assets) and its costs can be spread over several years. That is particularly important for local government at the moment as capitalisation therefore can help councils deal with the front-loading of cuts in their grants.

In addition to the £100m increase, the decisions on capitalisation are now expected in July which is six months earlier than usual.

Richard Kemp, Leader of the Liberal Democrats in Local Government, and not a man shy of criticising the government, has warmly welcomed the announcements:

I am delighted that Lib Dems in Government are listening to the pleas of local government.

It has been agreed following intense discussions between Lib Dem council leaders and Andrew Stunell the Lib Dem Minister in DCLG and Danny Alexander, Chief Secretary to the Treasury. It is not as much as we would have liked but is a lot more than we had originally been told.

This announcement is good news for local authorities with the most difficult settlements, as the money is expected to be handed out based on a council’s level of reserves and overall financial position. Lib Dems in local and central government and the Local Government Association have been lobbying hard for this.

Capitalisation, often of a council’s own money, means no hand outs from Government but an intelligent way of using available resources to ensure the minimization of disruption to services and the maximization of efficiency savings.

We hope other Ministers will listen to our sensible requests in the way that Andrew and Danny have done.

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