Decision day on Capital of Culture funding plans

Oct 30 2007 by David Higgerson, Liverpool Daily Post

LIVERPOOL City council leader Warren Bradley expects to hear soon if the Government will hand the authority a lifeline for funding next year’s Capital of Culture celebrations.

Last night, it emerged Cllr Bradley and chief executive Colin Hilton recently travelled to London to plead with Culture Minister Margaret Hodge for permission to use cash from building and land sales to help plug a £20m black hole in 2008’s finances.

It comes after the Daily Post reported the concerns of the authority’s chief finance officer, Phil Halsall, that services could be cut to pay for next year’s extravaganza.

The council has identified three options for funding the £20m left to find: using money from land and building sales, mortgaging council property, or using reserves.

But, in the latest financial update report to the council, Mr Halsall continues to report that none of the three options are guaranteed.

The council has asked the Government to allow it to use “capitalisation” money from the income from the sale of land and buildings. But the Government would be breaking its own rules if this were allowed, as capital receipts are supposed to be spent on further capital investment.

If approved, the council could use around £5m from land and building sales and hope to raise the rest under a lease-back scheme on a council building.

Cllr Bradley and Mr Hilton travelled to the capital about a month ago armed with letters of support from Steve Broomhead, chief executive of the North West Development Agency, and the Arts Council. Last night, Cllr Bradley said: “I don’t want to pre-empt anything. We got good support from the Department of Culture, Media, and Sport [DCMS].

“Fingers crossed, we will get the green light on it.”

He said the council was negotiating through DCMS and the Department of Communities and Local Government for Treasury approval. The Government has already turned down the council’s request to be allowed to borrow money to fund the £20m needed for next year.

Mr Halsall has warned that it would be inappropriate to rely on the “capitalisation” strategy.

Mortgaging a council building is unlikely to be allowed because of new accounting rules that come into force in April.

The other main option left is using reserves and balances, but Mr Halsall advises against this.

He said it “clearly puts the council’s financial standing at risk until balances and reserves are restored.

There is currently £5.7m in balances and £33.8m in reserves, which is primarily set aside for legal reasons and Private Finance Initiative (PFI) contributions.

Mr Halsall warned that relying on this option would mean the funds had to be replenished over three to five years.

It “could involve an additional council tax above that planned and/or additional revenue savings”.

Last night, Labour leader Cllr Joe Anderson said: “The city is in a really serious financial situation.

“It does not bode well for the Capital of Culture year or the future after that.

“The fact of the matter is that the Liberal Democrats’ financial mismanagement over a number of years has lead to this.

“The council has not been prudent and the chickens are coming home to roost.”

davidbartlett