Recession Causes Sharp Drop in Council Income

More cost-cutting almost inevitable

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New figures show that town halls have been hit by a £4bn deficit in income over the course of the last two years, currently equivalent to losing out on almost £11m every day in this year compared to financial year 2007/08.

Figures revealed by the Local Government Association, which represents over 350 councils in England, show that some key council income flows have been hit hard by a combination of the depressed property market and low interest rates.

Estimates based on the research show that in the last year, income from:

• Sales of land, council buildings and other capital projects have fallen by £2.7bn since 2007/08
• Interest earned on councils’ cash deposits has fallen by £1.3bn since 2007/08 due to low interest rates.

Sir Jeremy Beecham, Vice-Chairman of the LGA, said: “Town halls are being hit by a perfect storm caused by the recession. Sources of income have dropped sharply at a time when more and more people are turning to councils to help them through tough times.

“Town halls are feeling the effect of recession in exactly the same way as hard pressed homeowners and families. Low interest rates mean councils are much less able to rely on their savings, plummeting house and land prices have been hit hard and income from leisure centres and a range of other services has fallen.”

According to the Financial Times the squeeze on public spending is prompting “leading Tory councils” like Hammersmith and Fulham to propose radical cost-cutting measures in relation to local public services such as parks, libraries and street cleaning – something that could be a model for a potential Conservative government.

However, cuts were already being made locally well before the recession began. In its bid to become "the lowest spending borough in London", the Council have already introduced home care charges for the elderly and disabled, sold off community centres, increased charges for meals-on-wheels and scrapped the garden waste recycling scheme.

"The era of spend, spend, spend is over in local government. For H&F, it has been over for the last three years. During that time, we have focused our resources on the things that really matter to residents: cleaner streets, quality parks, schools, police rather than armies of bureaucrats, spin doctors, advisors and consultants,” said Council Leader, Cllr Stephen Greenhalgh.

“That's why by the end of this financial year we would have saved £26 million while still managing to deliver quality services - and that is exactly what other authorities have to do. We have to get away from the idea that spending more money leads to better services - we have proved that it doesn't,” he added.

Local political opponents dispute this saying complaints about issues such as street cleaning and dog fouling have increased and charges for council services have soared.

Coupled with a significant drop in town hall income, the Audit Commission has also warned that councils are not doing enough to prepare for the 'second wave' of the recession, which it predicts will bring a host of social problems.

In a report on how the recession is likely to develop, the Audit Commission says: “Demand for benefits, welfare and help with debt are growing, and social problems such as domestic violence and mental ill-health are expected to follow as the recession deepens. Councils should be preparing now for the social, financial and economic development challenges ahead. The most substantial pressures have yet to emerge,” the report warns.

The report says the Government expects councils to play a role in supporting their local economies and communities through the recession but, hinting at an ideological divide, adds: “A few councils believe that it is not the role of a local authority to save local businesses or provide jobs. They are not taking major steps to intervene in the local economy. Instead, they are focusing on cost saving or improving efficiency, often aiming to reduce or freeze council tax.”

Responding to the Audit Commission's Report, Cllr Greenhalgh said H&F had “successfully bid for Government funds to create 80 starter jobs in the community, while also launching a new apprenticeship scheme for young people.

“The council is doing what we can but this is a national problem that is hitting every town and every city. Our focus has been on lowering the tax burden for residents in these tough times,” he added.


19 August 2009