Local council budgets dominated business this week. On Monday night, Blaenhonddan Community Council spent some time discussing the figures on which we would have to base our decision on the 2012/13 precept. It was clear that we needed more time to make sure we get it right, and we will meet again early in the new year.

This morning, it was the turn of  the county borough’s finance officers backed by a representative of the Welsh Local Government Association  to paint the financial picture for 2012/13 and the two or three years beyond. It was not rosy. Although we benefit a little more than most Welsh councils from extra money from the government, it is going to be a struggle to meet the forward financial plan – and that is on the basis of official predictions. What is worse is that the inflation figures come from the Bank of England, which has been consistently too optimistic in the past.

On the  other hand, some of the most dire predictions may be confounded. Today’s unemployment figures are bad, but the claimant count is below most economic forecasts. Exports hit a record high in the third quarter and the visible trade gap narrowed more than expected. Higher than expected tax receipts have kept government borrowing on the track which chancellor Osborne set, in spite of the euro-panic which occurred after the budget. I am one of those heretics who believe that the Office of Budget Responsibility is now being too pessimistic and that reasonable economic growth will return in 2012 rather than 2013 or 2014, whether there are euro nation defaults or not.

One should also expect some help for the local retail economy when the benefits and pension increases, linked to the 5% rise in the CPI in October and which Liberal Democrats in government prevented the chancellor slashing, start to be paid in the spring.

There is also the political factor. The predictive settlement for 2014-15 is remarkably poor. It is inconceivable that in the run-up to a national election that central government will tighten the economic strait-jacket and one feels sure that there will be a “surprise” relaxation closer to the 2014 budget.

However, responsible treasurers cannot work on the basis of hunches, however well-based on experience they may be. So the council’s finance team is nerving itself for further tightening in 2014, based on the official forecasts.

I’ve already mentioned the schools improvement programme and the pupil deprivation grant, but there is a footnote on the latter. Nobody at today’s seminar was particularly happy with the way it has been allocated. It seems that, because Liberal Democrats and Conservatives* in Westminster agreed on the principle of the pupil premium, but not on a formula for its distribution, and because the coalition as a whole wanted virtually immediate implementation, they hit on the “quick’n’dirty” solution of basing it on the number of children claiming free school meals. The Welsh Government, facing similar political deadlines, has followed suit. This has the drawback that a large number of households who are entitled to claim free school meals, for several reasons do not do so. It seems that the Netherlands, where Nick Clegg took the Liberal Democrat policy from, has more sophisticated and comprehensive social data than we do and can therefore put the money more accurately where it is needed. The Centre for Policy Studies paper cited below suggests a commercial database, Experian’s MOSAIC. Finance director Derek Davies today speculated that the formula would have to change for 2012/13 and beyond, using social indices which are in the public domain.

Finally, there was some quiet amusement for the Liberal Democrat benches when Labour members praised the Welsh Government, rather than the Secretary of State, for obtaining a better local government revenue settlement for Wales than England did. It beggars belief that a Westminster government is going to pay more attention to a party which is now sitting on the opposition benches nationally rather than to coalition MPs in Wales. One notes that Scotland had an even better settlement than Wales. Following the ruling group’s logic, that means that we should have voted in a Nationalist Welsh Government last May. Oh, and we now know that if Labour had been returned to power in 2010 the Welsh settlement would have been worse.

*The thoughts of a conservative think-tank – with input from a Fabian socialist – are laid out in this pdf.

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