Equal pay agreements could cost councils billions

A Local Government Employers (LGE) report said councils must be allowed to borrow the funds in order to meet a March 2007 deadline.

It said a series of legal challenges had forced up the cost of a previous 2004 agreement to bring women's pay into line with their male colleagues.

LGE said some local councils were facing a "totally unmanageable burden".

But a Treasury spokesperson said it was up to local councils to deal with equal pay measures in an affordable manner.

The LGE added that the cost of employee back-pay and the demand of income tax and national insurance on all payments could see the eventual bill reach �5bn.

The report found councils facing the highest equal pay costs were in the West Midlands, with �928m, the North West at �740m and Yorkshire & Humber with �371m.

It added new equal pay arrangements were expected to add 3.7% to councils' annual wage bills.

Financial crisis

The LGE called on the Treasury to help ease the financial burden by lifting a �200m national ceiling on capitalisation - where councils can borrow money against the value of their assets.

The report also said ministers should consider legal reforms to ensure employers and unions can reach agreements on equal pay, through arbitration.

The report blamed the financial crisis on a series of legal cases against councillors, officials and unions to maximise the back-pay female workers could receive.

LGE managing director Jan Parkinson said the government cap on capitalisation was "unrealistic".

It may have been imposed because of the impact widescale council borrowing would have on the Treasury's ability to meet Chancellor Gordon Brown's "golden rule" that Britain's books will balance over the economic cycle, she suggested.

"With one council's equal pay liability standing at �250m alone, this is clearly insufficient and will significantly affect the ability of some councils to fund back-pay costs," she said.

"The largely unexpected scale of this problem means it is simply unrealistic to avoid providing local authorities with appropriate tools to manage this issue and ensure women feel the benefit of equal pay.

"This is not a begging bowl to central government," she added.

"This is asking for the flexibility for councils to be allowed to access their own resources."

A Treasury spokesman said it was meeting its "strict fiscal rules", and that the government had increased investment into local services by 39% since 1997.

"It is for local government to ensure that it implements pay reviews which remove discriminatory aspects of its pay structure, and tackle equal pay proactively and in an affordable manner," he said.