I posted (below) some time ago on the mysterious £860m (rising to £905bn in four years) they could “save” from the audit and inspection of local government. As the entire budget of the Audit Commission – the main body involved – is only just over £200m how could they save four times this amount?

The Lib Dems response (provided to the BBC and published with their permission) – which I reproduce below – is long, complex and vague about how exactly they reached the £860m figure. They throw a whole range of sometimes vast and often impenetrable figures into the mix. But the essence of their answer comes down to a simple point – their £860m comes in relatively (small) part from reducing the costs of the AC and other inspection bodies (probably a quarter at most) and mostly from reduced ‘compliance costs’ in local government (at least three-quarters or £645bn).

This is all well and good – and we can argue about their figures which are dubious at best and ill-sourced (see the Audit Commission’s own response to one of the sets of figures they rely on). But the larger portion of these savings – from ‘compliance costs’ – can only be counted if they are turned into actual savings, in real money. The Lib Dems count the whole amount as actual cash savings – but as these are compliance costs for local government they would only be real, cashable, savings for central government if (a) local government made the savings without affecting services and (b) returned the money to central government. Or put another way, the central government would have to cut its subsidy to local government by the amount of ‘saved’ compliance costs.

So the Lib Dems proposal is actually, by implication, to cut £645m or so from local government budgets on the assumption that LG can make these savings from reduced compliance costs. Otherwise it can’t be counted as a real central government ‘saving’. It is also roughly the equivalent of 11,000 or so jobs. Given all this, I think a little more clarity might have been in order?

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Lib Dems explanation:

Reducing targets for local government will lead to savings to central government and savings because of reductions in compliance costs to local authorities.

The bodies that specifically inspect local government are: 9 regional govt offices which duplicate work of OFSTED, Care Quality Commission, Audit Commission, HM Inspectorate of Constabulary and Homes and Communities Agency. In addition you have Natural England. However most central government departments insist on some reporting back from local government. The National Audit Office put the cost of inspecting local government at £2bn (http://www.communities.gov.uk/documents/localgovernment/pdf/158355.pdf Lyons Inquiry into government, Part 2 –Problems and solutions, p79 point 3.7.) However we have been very prudent in our estimates of how much central government could save as external estimates of the costs of distortion and poor system design resulting from central interference range from £17 billion to £34 billion source: Localis report For Good Measure. This means that there would be huge savings from reducing central government targets which extend far beyond reducing inspection costs. For example, recent research in Leicester and Leicestershire for the Total Place pilot has identified that over 3,000 performance datasets, reports or evaluations are likely to be processed and reported on by public bodies in the county each year. An estimated 92 full-time staff are involved in servicing these requirements, at an estimated cost of £3.7m.

In addition, we also believe that local government can save money in compliance costs once central government targets are reduced. It is estimated that it costs local councils an average of £1.8m a year to comply with inspections (http://www.communities.gov.uk/documents/localgovernment/pdf/151585.pdf, Mapping the Local Government Performance Reporting Landscape, p9.). We estimate that local councils could save over a quarter of a million a year from reduced compliance costs. This is once again a prudent estimate as the Comprehensive Area Assessments also cover combined fire authorities however we have not included these in our calculations as the savings are specifically based upon cutting back inspection of local councils. We also have not included any savings made by police authorities from reduced compliance costs.

Additionally, the LGA estimates that £4.5bn a year could be saved by reducing central government assessment and reduced compliance costs to local councils. This is another example which illustrates that the cost savings we hope to make are based on very prudent estimates. (http://www.lga.gov.uk/lga/aio/6763737).