Why councils spend millions on big projects but still say they have no money

In five years time many councils across the country could go bankrupt, according to local government experts who believe funding reform is desperately needed to stop this.

Every single local authority in Greater Manchester has raised council tax - with rises to kick in in April - and claimed they are fighting to stay financially secure - although none admitted any risk of going bust.

This has led to many readers asking ‘why, if they are so cash-strapped, can Rochdale and Manchester councils afford to spend millions on their town hall renovations’.

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The simple answer is that funding public services and spending on capital projects comes from two pots of money that cannot cross over.

Although councils like Manchester may be able to spend £300m on renovating their town hall, that same money cannot be spent on providing services such as waste collection, social care or libraries.

The money that can be spent on big projects is called capital funding and money spent on services is from the revenue account.

The main reason councils need to raise council tax is because it is one of the few ways in which they can generate income for the revenue account to fund services. The other funding avenues are through business rate collection, charging for services and government grants.

Capital funding is not as strict and councils can take out loans in order to improve infrastructure in their areas. The reason for this is that these projects are seen as investments in the council area and add value - so the £20m that has gone into Rochdale Town Hall is adding £20m of value to the council asset.

In comparison, money spent on