Chief executives meeting at the SOLACE conference this week will be anxiously studying the small print of last week's bombastic announcement by chancellor George Osborne that he is aiming to build up a budget surplus for a ‘rainy day.'

As one local government insider said: ‘It's bad enough having to push through cuts in order to balance the budget, let alone looking at making a surplus.  Where is this money going to come from?'  The concern among council chiefs, leaders and finance directors is that local government will once again bear the brunt of more cuts, especially if the NHS and education continue to be protected.

Mr Osborne received wide media coverage in his speech to the Conservative party conference last week when he called for ‘an absolute surplus in the next parliament provided the recovery is sustained.'

He said this could be achieved by ‘controlling day-to-day government spending and capping welfare' rather than raising taxes.  The chancellor blamed Labour in the past for not running up a budget surplus saying: ‘It should be obvious to anyone that in
the years running up to the crash this country should have been running a budget surplus…When we've dealt with Labour's deficit we will have a surplus in good times as insurance against difficult times ahead…that will bear down on our debts and prepare us for the next rainy day.'

He said this would ‘form the foundation of our public finance policy' and he would set out the details ‘next year,' presumably in the March Budget.

His comments were echoed by the prime minister in his conference speech two days later when he promised more years of austerity and warned that the UK still has one of the biggest deficits in the world.

In his speech, Mr Cameron said that if anyone believed debt reduction had been achieved ‘they're living in a fantasy land.'  He added: ‘The struggle will only be worth it if we as a country finish the job we've started.  Finishing the job means understanding this.  Our economy may be turning the corner but we still haven't finished paying for Labour's debt crisis.'  He went on: ‘This country's debt crisis is not over.  After three years of cuts we still have one of the biggest deficits in the world.  We are still spending more than we earn.  So finishing the job means sticking to our course until we've paid off all of Labour's deficit, not just some of it.  Let's run a surplus so that this time we fix the roof when the sun is shining.'

At a conference fringe meeting, LGA chairman Sir Merrick Cockell pointed out that local government will have lost a third of its grant funding over four years, with more outlined for 2015/16.

He added: ‘If there is a planned surplus then the message is bad for us.  We won't just have to balance the budget but take it into surplus.'  He said shared management and more back office savings would not be sufficient to meet the necessary shortfall and called for a longer-term, negotiated settlement rather than one dropped on local government at the end of each year.

Local government is set to face another 10% cut in 2015/16 and one borough last week, Camden LBC, estimated from DCLG finance settlement consultation that it is facing a cut in resources in 2015/16 of about £25m compared to 2014/15: the equivalent of £311 on Band D council tax.

Ironically, the same day (2 October) the Office for National Statistics published the latest debt figures which tend to back up the prime minister's gloomy prognosis.

In 2012/13, general government gross consolidated debt was £1,386.7bn, equivalent to 88.3% of GDP, up from 85.0% in 2011/12
.
In 2012/13, general government deficit (or net borrowing) was £82.1bn, equivalent to 5.2% of GDP, down from 7.6% of GDP in 2011/12.  However, all but 0.2% of this drop was down to a combination of asset purchase facility transfers in the first quarter of 2013 which lowered borrowing by £6.4bn, while the transfer of the giant Royal Mail pension fund to the Treasury reduced borrowing by a further £28.0bn.

Together, the transactions reduced net borrowing by 2.2% of GDP.

Both the latest debt to GDP ratio of 88.3% and net borrowing (ie deficit) of 5.2% break Maastricht treaty rules which stipulate the figures should be 60% and 3% respectively.  So, in making their speeches last week, both the chancellor and the prime minister would have known that deficit reduction remains a challenge.

To give an idea of the scale, although the deficit is down from 11.4% of GDP in 2010 it is still higher than 2007/08 when it was 2.9%.  As a percentage of GDP, government debt at 88.3% is over double what it was in 2007/08 and higher than any year since then.

In fact, it has increased every year since 2002/03.  The only consolation is that the UK is not alone in breaking the Maastricht rules; last April 15 EU members failed to meet the targets.