The UK Experience by Malcolm Morley*
Spiralling inflation has reduced the real terms value of money that councils receive in grants from Central Government and through Council Tax. Falling income, from activities such as planning applications, building control and the use of leisure facilities has added to the problem. Councils holding portfolios of commercial properties are also in danger of falling income as their commercial tenants face difficulty and in some cases go bust.
Asset sales to generate capital receipts and to reduce revenue expenditure have been severely affected. The worsening risk rating of financial institutions also means that the cash deposits of councils are of growing concern.
In October 2008, the insolvency of Icelandic banks, in which 116 councils had placed deposits to the value of £858 million, caused major problems. At the time of writing, negotiations are ongoing to try to resolve this issue.
Overall, current levels of inflation mean that the value of Government funding to councils over the next three years is currently worth almost £500 million a year less than originally intended.
Increases in fuel and energy prices, which come on top of a £374 million rise in councils’ fuel and energy bills over the last two years, are creating significant challenges.
Clearly councils cannot stop providing vital services that people need. They are having to absorb these extra costs. There are limits to the ability to absorb these financial pressures. As the budget build process for the next financial year gathers pace, very difficult decisions are being made about services and income generation.
Councils raise £10.8 billion income through charges for services every year. This is encouraged by the Government to keep locally raised Council Tax down. It is also a means by which expenditure on vital services can be protected. Councils are having to fundamentally review their income generation strategies.
The service portfolios of councils include mandatory statutory and discretionary services. The way the mandatory services are provided is having to be reviewed. The discretionary service portfolio is facing significant pressure.
Major efficiency gains have already been achieved by councils. It is acknowledged that Local Government has led the way in the public sector in achieving efficiency gains. The ‘low hanging efficiency gain fruit’ has been picked.
Significant efficiency gains are now only possible through a transformational approach to efficiency. An approach that will challenge not only what is provided but the role of councils in that provision. It may also kick start a more generalised approach to partnership working within the public sector.
Many councils have signed up to various climate change and environmental charters. While much has been achieved, the inflationary increases in fuel and energy costs is likely to hasten progress. Policy will be supported by an urgent economic imperative. Real changes in how councils conduct their businesses will have to be accelerated to save money as well as the planet.
Despite all of the above, councils in England have developed a track record for resilience and achievement in the face of adversity. Change will be accelerated but Local Government will be equal to the challenge.
*Malcolm Morley is Chief Executive of Harlow District Council and can be contacted via the Editor, email info@lgfocus.com.au The views expressed in this article are not necessarily those of his employer.
