Moves to bring parity between blue-collar and white-collar staff in local government are welcome – and long overdue.

But many councils are struggling to finance the spiralling costs of implementing equal pay, since central government has left it to individual authorities to foot the bill. In a parliamentary debate in February, the-then local government minister, Phil Woolas, stressed that pay arrangements were the responsibility of individual employers, as they had a framework process for implementing local pay reviews.

Public sector union, Unison, has estimated the pay envelope within individual authorities could rise from 3% to as high as 10% to properly implement a new pay structure – and these were straight costs on to the revenue account.

Meanwhile, Local Government Employers claims equal pay compensation claims could be anything from £3 to £5bn. In the North East, equal pay cases have seen Newcastle City Council costs reach £17m, with Sunderland following closely behind at £15m.

There is frustration among both trade unions and those local government employers who are facing massive funding gaps. This has led to calls for more scope to ‘capitalise' the cost of equal pay, by allowing revenue costs to be met from capital funds, such as existing capital receipts or new receipts from the sale of assets or from borrowing.

The 2003 Local Government Act gave the secretary of state power to issue directions to councils on the issue of capitalisation, although similar provisions existed under the Local Government and Housing Act 1989. However, government guidance and directions to date have been less than helpful. The DCLG has made it clear that while it will consider requests for directions for lump-sum payments to former and current employees, it will not do so for ongoing salary increases.

In effect this means all revenue costs must come from within existing resources.

Some may argue this fair enough, given that salary costs of employees have always been in the gift of individual local authorities to manage. The Government is also keen not to act more favourably towards those councils which, arguably, have taken a dilatory approach towards equal pay.
So, allowing a general approach to capitalise all costs associated with equal pay would not be popular among those councils which have grappled to implement fair pay and grading structures with no financial help from the Government.

But the lump-sum payments are a different matter. Despite the estimates of between £3-£5bn for dealing with back pay and compensation, the DCLG has limited the total pot available for capitalisation to just £236m with councils needing to have applied by May to have any chance of receiving positive directions by September 2007. To date, councils have faced receiving on average just over 57% of what they have asked for.

As chancellor, Gordon Brown's golden rule was that long-term borrowing could only be used to finance capital expenditure. So, ministers have been understandably resistant to any calls to expand what is in effect borrowing to fund equal pay.

It was never envisaged that borrowing by councils would be needed simply to fund its equal pay liabilities. But with just £236m to play with against the billions needed to secure financial settlements, the formal position, that equal pay is a matter for local councils to contend with because the Government was never party to a deal, originally struck in 1997, is increasingly viewed as obtuse.

The rigid inflexibility of local government finance does little to secure long-term financial planning. And yet, dealing with equal pay properly is a legal requirement and could have a positive impact nationally. Questions are now being asked of both the new prime minister and the new communities minister about the unrealistic cap on capitalisation. Perhaps Hazel Blears can persuade Mr Brown that getting equal pay right in local government is not only a moral imperative but also a sensible outcome.

It is clear that employers and the trade unions are not asking for the Government to abdicate its fiscal planning simply by allowing full capitalisation of all costs for equal pay. They are asking for sensible treatment to enable negotiated back pay settlements to continue.

Mo Baines is principal adviser with the Association for Public Service Excellence