We're desperate for a bailout, plead councils

Oct 6 2008 by Adrian Pearson, The Journal

CREDIT CRUNCH-hit councils struggling to fund services including elderly care and bin collections last night told Alastair Darling: “Bail us out”.

Finance chiefs from the region’s local authorities say they could be forced to cut services if they don’t get extra money from the Chancellor.

They claim the looming financial crisis has been made worse by a three-year spending settlement which last year set a budget up to 2011 based on an inflation rate less than half the current 4.7%.

Newcastle Council leader John Shipley said last night it was time for the Government to act.

The Liberal Democrat said while he did not think Government money spent on nationalising Northern Rock was wrong, it was disappointing that ministers could not also see the case for providing more cash to essential services.

“Councils are under enormous pressure in areas such as adult social services and children’s services and yet we can see the Government is only prepared to bail out the City,” he said.

Last night the Government said local authorities should simply become better at managing their money.

Town hall bosses tasked with finding cash for everything from social services to bin collections said they were hoping ministers would consider extra money for councils in this autumn’s pre-budget report.

But multi-million pound bail out funds being used to support financial services in the City mean there is unlikely to be any extra cash to help authorities meet soaring bills.

And with council tax rises unlikely to be enough to meet growing funding deficits, finance experts have warned they will have some “difficult decisions to make” in the next 12 months.

City leaders say they need help to meet the multi-million pound increase in council costs caused by rising inflation and the impact of the credit crunch.

In the next year alone, Newcastle Council will spend nearly £2m more than budget on energy, will lose more than half a million pounds from a down turn in commercial property rent and expects to lose between £2m and £3m each year for the next three years through the drop in the value of council land sales.

In Northumberland, councillors are now predicting an overall fuel and energy bill of £1.6m and a drop in their ability to make up the difference through land sales.

Last night Mr Shipley said: “We are really very worried about the issue of future income and rising costs.

“It is a very serious problem for us, but rest assured, we are going to do all we can to manage the impact of this on council taxpayers.”

He urged the Government to look again at the amount of money it hands out to councils, which nationwide has seen a £500m reduction due to rising inflation.

The Local Government Association has also warned that spiralling inflation has massively reduced the impact of an already tight funding handout.

Margaret Eaton, chair of the LGA, said rising food budgets for schools and elderly services, coupled with increasing energy prices and the likelihood of even greater bus subsidies being paid out meant councils faced serious financial burdens. She added: “As inflation rises, the amount that councils can buy with their money shrinks, just as it does for hard-pressed families, meaning that the money town halls have to spend on vital local services won’t go as far.”

The Department for Communities and Local Government has told councils they must look at ways of saving money.

A spokesman said: “In this difficult economic climate, everyone is feeling the pinch. Local Government and National Government are in the same position. Councils will face tough decisions, but this is what local leadership is about. I am pleased that the LGA has said that councils are coming up with innovative ways to save money.”

We are really very worried about the issue of future income and rising costs.