Tuesday, March 10, 2009

Cutting the cost of retirement

The second bit of 'good news' to come out of next week's cabinet meeting concerns the plans to construct ten new care home 'villages' and close the existing 29 homes across the City. When originally proposed, this received all-party support and the plans were striking and forward-looking - with the potential to put Birmingham at the forefront of elderly care and set the standards for others to follow.

Predictably, the Liberal Democrat/Conservative Regressive Partnership have run into problems. Part of the capital funding for building these new homes was supposed to have come from the sale of the land where the old homes sat, raising some £22.3 million, but property values now mean that the likely benefit is to come to around £4 million, leaving an £18 million black hole in the funding plan. In addition, the council will have to hand back £45 million in PFI credits that were to have been used to fund the development.

This is concerning on a number of levels, as the Budget agreed last week by the council only allows for a total of £15.3 million slippage in 'capital receipts' across the City. Granted, this will come in over four years rather than three, but the income should still be there - unless these figures are just so much wasted ink and amount to little more than a barely-educated guess. The capital income was to be used to pay off the borrowing used to fund these centres.

I mean, you can understand a Conservative-led council being tough on borrowing - they've been critical of the Labour government for increasing the national debt.

But then you realise that they plan borrowing of over half a billion pounds across the next three years, with a massive jump in debt this year to cover a shortfall in capital income. Indeed, the Tories and Lib Dems have approved a new borrowing limit of over £3 billion for Birmingham City Council. You do have to question their priorities - whether it is wilfully delaying construction of a new Library of Birmingham for shameless political reasons, spouting hot air over whichever project has been proposed this week to sate Whitless' vanity (the 50m swimming pool is a prime example of this) or the studied vagueness and corporate-speak that surrounds the 'Business Transformation' plans that will generate cost efficiencies at some point, but will actually incur a net cost to the city of a couple of million pounds this year.
So why couldn't some other programmes have bitten the dust or taken a cut in costs to cover this shortfall? Or is this just the easy option - hitting at those least able to fight their own corner?
The other possibility is that things are far worse than their own reports suggest and that far deeper cuts are coming down the line. The fact that only last week, there was a £15 million gap in planned capital receipts, which has now widened to £18 million in seven days, suggests that the figures listed above are just wildly optimistic and bear no relation to reality. If the land supposed to bring in £22 million is only likely to raise 20% of that, that suggests a black hole in the capital receipt accounts of around £230 million - a massive shortfall that cannot easily be filled. If the Highways PFI fails to lift off - a major risk in the current climate - then a further £300 million will have to be found for capital investment in Birmingham's roads, which have already been starved of funds in advance of the PFI starting.
Neil Kinnock once said 'You can't make a wit out of two half-wits' - but that hasn't stopped Birmingham Council from trying.

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