Chris Daniel: There is more mileage in cutting council costs

THE public finances are in terrible shape. The coalition Government has set out a plan to reduce the deficit and part of that means a cut to the grant received by councils.

Sure, their financial settlement is pretty tough but the response from some councils has been politics first, value for money second.

Leeds Council claim “the Government’s massive spending reductions... leave us with no choice other than to reduce services”.

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Lambeth Council in London put up provocative posters, saying: “The Government has cut our money, so we are forced to cut services.”

They obviously haven’t looked hard enough for alternatives.

Councils should be questioning every single area of spending to identify savings. And here’s one for them to start with: the TaxPayers’ Alliance have revealed that more than 80 per cent of councils across the entire UK are paying well in excess of the HMRC recommended rate for staff mileage claims.

With a total bill for mileage allowance payments of £420m nationwide, the additional payments above the HMRC rate add up to a staggering sum.

The advisory rate set by the taxman is now 45p per mile up from 40p, since the recent Budget. This is the rate at which staff can claim mileage as a tax-free business expense.  Anything above it is taxed as a perk.

Sandwell Council, in the Midlands, predicts that reducing its rates to those recommended by the taxman could save it in excess of £1m each year.

What would £1m pay for? A whole team of street cleaners? More social workers? Filling all of the potholes that blight Yorkshire’s roads? Or, as our latest report on the police wasting money on glossy magazines shows, it could pay for the employment of 22 police officers.

If all councils brought their allowances in line with the 45p rate tomorrow, the savings across the UK would be considerable, freeing up vital cash to help protect the services people actually value.

We aren’t saying staff shouldn’t be fairly compensated for their costs at work. But council staff shouldn’t be paid well above and beyond what ordinary workers in the private sector get. We’re not living in an age when a public servant is so badly paid that they need other perks to compensate. Average wages in the public sector outstrip those in the private sector.

What’s more, the HMRC advisory rate is there for a reason. Firstly, it is calculated to fairly cover the cost of motoring. Secondly, the HMRC rate is set for tax purposes. Anything paid above this therefore creates costly and unnecessary administrative burdens (on top of the £420m annual cost of mileage payments), as you have to pay taxes on it.

The disparities across Yorkshire are plain-to-see. Out of the 22 councils in the region, only five pay the 40p rate. The remaining 17 pay well above this. Why are councils paying such different rates?

An employee of Leeds City Ccouncil can receive up to 65p per mile whereas employees of Bradford and Sheffield are refunded the recommended 40p. For every 250 miles driven, this would make an employee of Leeds City Council £63 better off before tax.

The average mileage rate has been going up, too: 2.78p between 2009-10 and 2010-11. Now that councils have to rein in spending – and not before time – they should reduce the amount they pay out in mileage allowance rates. This vast inconsistency shows that many local authorities are out of touch with reality.

It’s encouraging to hear many councils have indeed reduced their rates for this financial year, bringing them down to the advisory rate in many cases. This is to be praised. But why they were so high in the first place and why are other councils so vehemently opposing any reduction? They were obviously excessive if so many of them have suddenly decided to reverse the rates.

This is an easy and painless cut all councils should make. Councils can’t plead poverty with a straight-face when so many straightforward savings remain. Thinking of the big picture, replicating these kinds of spending reductions across the public sector can help whip those finances back into shape.

Chris Daniel is a policy analyst at The TaxPayers’ Alliance.