Councils search for ways to borrow money to avert equal pay crisis

Local authorities are working on radical financial plans in an effort to solve the multi-billion pound equal pay crisis that is threatening to overwhelm them.

Several councils are in talks with a major law firm about plans to set up ‘trusts’ that would allow them to borrow money to fund equal pay settlements, Personnel Today has learned.

The Local Government Employers body estimates that it could cost £5bn to cover equal pay liabilities.

Councils are currently restricted by the Treasury on the amount they can borrow on the value of their assets – known as capitalisation. The department has said bids to capitalise back-pay settlements would be subject to a national cap of £200m, a stance that has not shifted despite pressure from senior local government officials.

The cap has been imposed because of the impact that widespread council borrowing would have on the Treasury’s ability to meet chancellor Gordon Brown’s ‘golden rule’ that the UK’s books will balance over the economic cycle.

The equal pay trusts would have the power, as a separate entity, to borrow the necessary cash without affecting the councils’ balance sheets. According to one insider, the question would then be whether the Treasury would accept the proposals.

Jan Parkinson, LGE managing director, told Personnel Today: “The government will not give us money for [equal pay] – that is absolutely clear.

“What councils are doing is asking the Treasury to look at something that will help.”

Parkinson admitted that she was “disappointed” with the government’s position that no extra money would be made available to fund equal pay settlements.

Latest LGE figures show that just one-third of councils are expected to meet the 31 March deadline for implementing equal pay deals. Parkinson insisted she wanted the issue sorted out “as soon as possible”.

Equal pay in numbers

£5bn – estimated total cost to councils of equal pay liabilities

3.7% – percentage increase on annual council wage bills

£250m – one unnamed council’s equal pay liability

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