Councils crippled by poll tax sleight of hand

Many councils are facing a mounting financial crisis after the Government encouraged them to cut their contributions to staff pensions' funds to help balance poll tax budgets.

Liberal Democrats in one borough, Waverley in Surrey, claim its residents are having to pay an extra pounds 25 each this year because the former Tory administration used the government-sanctioned "sleight of hand" to cut community charge bills.

The cost to that council of the need to restore the full pensions fund - combined with adjustments to housing budgets it claims were also raided - will be an estimated pounds 1.3m by 1999-2000.

Anna Thomson, the council leader, said: "You can wrap it up any way you like, but the reality is we're having to pay the price of the poll tax."

The relaxation of rules introduced in 1989 in England and Wales was condemned as "crazy" by many local government staff. Instead of requiring funds to have enough assets for 100 per cent of their pension liabilities, the limit was dropped to 75 per cent.

After three years, the 100 per cent solvency rule was reinstated but no time scale was laid down for that figure to be attained.

However, the problems created have now been compounded by high redundancy and early retirement rates which, while cutting councils' salary bills, put more pressure on the funds.

Richard Cockcroft, corporate services director of Gloucestershire County Council, said the relaxation of the rules was a "bad mistake".

"It was a crazy and a fatal move. Everybody in the industry - the pension fund managers, actuaries, everybody except the politicians - said, 'This is bad economics'."

Gloucestershire had kept its contributions rates deliberately high after the 100 per cent rule was reinstated but was still alarmed to learn that its funds were lower in 1995 than in 1992, he said.

All but two or three authorities were facing a significant increase in their contributions, according to the last survey by the Society of County Treasurers.

In some cases, instead of matching or slightly bettering employees' contributions, authorities were having to pay in double to restore their pension funds to full solvency. "That is quite a burden," Mr Cockcroft said.

The problem has also been raised at the pensions panel of the Chartered Institute of Public Finance and Accountancy.

But not all authorities followed actuarial advice because of political expediency. "They will not be in a healthy state now. Putting the money in today would be more expensive."

Anna Thomson in Waverley said the council treasurer has advised them their pensions burden will increase, at a time when their revenue support grant from central government has been cut - by 42 per cent last year and a further 8.2 per cent next.

"We have to take the view that it is convenient for [Conservative] Central Office if we have huge budget problems," she said.

However, Ann Mugford, a councillor who was Conservative group leader at the time of the decision, said the Liberal Democrats were throwing up a smokescreen to hide their mismanagement.

But she admitted she had not been aware of the consequences of the earlier decision.

"At the time we were led in a certain direction to do something we couldn't see any reason not to. It was as simple as that," she said.