Capital spending
Revenue spending
is what the council spends on recurring items like salaries and paperclips.
All of the council's revenue spending should be balanced by
what the council earns from "trading" activities, like charging
for car parking and interest on its balances,
plus the amount that it raises each year from
Council Tax.
Capital spending
is what the council spends on
long-life assets like land, buildings and motor vehicles. There
is a very respectable argument that says that long-life assets
should be paid for by borrowing, because to pay large amounts
for capital assets lie land and buildings from Revenue Assets
(like Council Tax) means that today's taxpayers would be paying
"up front" for the benefits enjoyed by taxpayers 10 years down
the line.
Grey Areas
The problem with this
simplistic approach is that there are grey areas. For instance,
how do you categorise computer equipment? Strictly, it is a
capital asset, so should be paid for by borrowing. On the other
hand, because computer equipment goes out of date very quickly,
you can argue that it ought to be paid for from current
revenues, because you will have to repalce it within 12 to 18
months if you are to keep up with developments in the
technology.
Another problem is that borrowing has a cost in
itself. It is always more expensive to borrow to buy something
than it is to pay for it outright. Councillors have, therefore,
to make judgements about these issues on a case-by-case basis.
Another problem is that central government complicates
matters by making special rules about borrowing by councils;
worse, they complicate things even more by changing the rules
from time to time - sometimes at very short notice.
Debt Free Councils
A case in point is the recent decision by government to abolish
Local Authority Social Housing Grant (LASHG). This will very
seriously compromise West Devon's ability to build new Social
Housing (what we used to know as Council Houses). This is a
very complicated issue: simply put, one effect of this is that
WDBC has had to make a decision to become a "debt-free" council
by paying back the borrowings that it made many years ago, when
interest rates were very high. To do this, it has had to incur
an early repayment premium of over a million pounds.
The reason for this is that, because of the government's change
of policy, it was the only way we could ensure that funds were
available for our house building for another year. The net
effect of paying the premium "up front" was that we should have
money available for the housing strategy that we should have
lost if we had not become debt-free. The reason for that is
that the government allowed an extension of LASHG only to
councils that became debt-free before the end of the last
council accounting year. I said it was
complicated.
So it's all very well for LibDems to make snide comments about
paying "up front" for assets, implying that borrowing is a good
thing. Whilst that's true enough, it glosses over the fact that
there are times when, because of goalposts being constantly
moved by government and economic factors completely beyond the
council's control, it isn't always the right thing to do.
The reality is that a balanced council can make decisions based
on the realities of the current situation, not on the basis of
a single party's current policy. This is a good reason, in my
view, for having a council which doesn't have a single
political party in overall control.
That's why I am and remain independent of party
politics when I am acting as a councillor, though I
welcome the conflicting views of the parties to inform the
decisions that the council has to make.
Published as an Internet document by R W Mathew, Willowby, Down Road,
Tavistock, Devon