Guidance from DCLG says local authorities can only use new capital receipts to cover the cost of service reform
Local authorities have been told they will be able to use funds from future sales of capital assets, beginning with the next financial year, to pay for service reforms including the increased use of digital technology.
The Department for Communities and Local Government (DCLG) has told councils that they can use the money as part of the flexible use of capital receipts from selling property, plant and equipment from April 2016 to March 2019. But they will not be able to use capital receipts from earlier sales or to borrow money for the costs of service reform.
The guidelines have been spelled out in the recently published Draft Guidance on the Flexible Use of Capital Receipts, and provide councils with a limited scope for spending on digital transformation. It is likely to provide relatively small compensation for the fact that no money was provided to support local government digital initiatives in last November's Spending Review and Autumn Statement.
According to the guidance document, the spending can be justified under a 'qualifying expenditure' list if it will generate ongoing savings.
The list includes a specific reference to projects “driving a digital approach to the delivery of more efficient public services and how the public interacts with constituent authorities wherever possible”.
It also includes projects that would be expected to include significant digital elements, such as sharing back office and administrative services, improving systems and process to tackle fraud and corruption, integrating public facing services across two or more organisations, and setting up alternative delivery models.
Such projects are widely regarded as being crucial to the future of local services with big cuts in financial support from central government, but councils will struggle to find the money for investment while maintaining mandatory services.
The guidance provides a change from the existing system, under which the money from capital receipts is ring fenced for capital investment. It is possible for councils to apply for a 'capitalisation direction' to meet costs out of their control, but none have been issued over the past two years.
It has also been possible to bid to use capital receipts under the Transformation Challenge Award, but the new system will allow councils to spend the money without submitting a bid to DCLG and with no upper limit.
Long term settlement
A DCLG spokesman said: “This government is providing a long term funding settlement for the first time allowing local authorities to plan with certainty.
“As part of this we’re giving councils new flexibility to use up to 100% of the receipts from the sale of land and buildings to reinvest in local services. Our plans will support local government to implement radical and historic reform so councils can save money, while improving services.”
Councils were given the right to use capital receipts on the revenue costs of reform projects as part of the Spending Review, but they were hit hard by the overall financial settlement, losing £4.1 billion in funds over the period. The only money channelled through the DCLG for digital projects will be for the fire services' communications programme.
Soon after the announcement public sector IT association Socitm highlighted the lack of support and called on the Cabinet Office to ensure the Government Digital Service extends its focus to local government.
Image: Howard Lake, Colchester, CC BY-SA 2.0, via Wikimedia Commons