Councils will have to make further savings as the economic slowdown bites, local government bosses warned on Friday.
The economic slowdown has left town halls having to find more than a billion pounds of savings over the next three years to safeguard vital local services and keep council tax down, town hall leaders said.
The Local Government Association (LGA), which represents over 400 councils in England & Wales, is warning that the grim economic climate and rising inflation is forcing councils to come up with new ways to make money go further and maintain normal services.
In a statement, the LGA said: ‘New analysis shows that spiralling inflation has reduced the real-terms value of money that councils receive in grant from the Government and through council tax.
‘In real terms, the funding awarded to councils in last year’s Comprehensive Spending Review is now worth almost £500m a year less than the Government intended.’
The warning comes as the LGA sets out the eight main ways in which the nation’s economic downturn is affecting councils.
• Overall, current levels of inflation mean that the value of government funding to councils over the next three years is currently worth almost £500m a year less than originally intended.
• Further increases in fuel and energy prices, which come on top of a £374m rise in councils’ fuel and energy bills over the last two years.
• Rising food prices and the impact on school meals and catering for the elderly and disabled – school food budgets have risen by up to £80m over the last year.
• A fall in income as the housing market slumps and developments stall, reducing both regular income from services like land searches and development control and, more significantly, from asset sales and receipts from developers that fund new investment.
* A fall in income from a range of other services that councils charge for, such as leisure centres, as household budgets become tighter.
* A fall in the value of council assets such as local authority-owned land and buildings.
* 5m people expected on the social housing register by 2010.
* The need for increased subsidies to private bus companies to ensure they keep vital local bus routes in place despite rising costs.
Cllr Margaret Eaton, Chair of the LGA, said: ‘These are tight times for everyone but the difficult economic environment is hitting town halls particularly hard.
‘As the hard financial times bite, local councils are having to tighten their belts in exactly the same way that hard-pressed families are.’
The LGA noted under Fuel costs:
‘Research undertaken by the LGA shows that in 2006/2007, councils spent £1.23bn on fuel costs to run vehicles such as their rubbish bin fleets, gritters and meals on wheels vans and on heating and lighting for schools and other council buildings, up £374m from 04/05.
‘In this financial year (April 2008 – March 2009), if prices stay the same, the cost of providing these services could rise to £1.77bn.
‘Fall in income from council services:
‘Councils raise £10.8bn in charges every year and are encouraged by the government to use charging as a way of raising income, keeping down council tax and funding relevant local services.
‘Councils may expect less revenue from services such as leisure centres as the economic downturn means residents have less money in household budgets.
‘School food:
‘The annual budget for school food is around £537m a year. The Local Authorities Caterers’ Association estimates that the cost of school dinners has increased by up to 15% over the last year – which comes to an increase of £80.5m.
‘Social housing:
‘The number of households waiting on social housing lists increased from 1m in 2001 to 1.6m households last year.
‘An LGA report into social housing found that the factors which are set to increase further the demand for social housing include:
• An increase from 1 million in 2001 to 1.6 million households – or four million people – last year on social housing waiting lists.
• Around 40% of new mortgage offers are withdrawn, and deposits needed to get a mortgage have increased, making it harder for first-time buyers to get on the housing ladder.
• Second lowest mortgage approvals in 13 years, reducing demand for new-build where affordable housing is built.
• A 16% increase in repossessions compared to same period last year as people fall into negative equity or are made redundant.
• Local authority and housing association new-build over the last decade is at its lowest since 1947.
The LGA gave examples of the situation around the country.
Kent County Council is investigating bulk purchasing of fuel and oil in order to buy at discounted fuel prices.
Kent CC currently buys 18m litres of fuel a year and would need to buy around 80m to secure a lower price. Kent faced a 23% increase in fuel costs and faced an additional bill of some £400k for direct fuel use.
Councils in the South East are also considering grouping together with NHS trusts, regional government offices and even prisons and universities to be able to bulk buy fuel.
Thanet District Council has found savings of more than £500,000 have to be found, after soaring utility and fuel costs and other price rises left the council facing a budget shortfall.
Amongst the issues faced by the council is a rise in its electricity charges of 63% so far this year, but the council has also been hit by the rising cost of fuel, as the council uses a range of vehicles to provide essential front line services, including refuse trucks, street cleaning machines and ride on mowers.
Nottinghamshire County Council predicts that the annual bills for gas and electricity to run the authority’s buildings and streetlighting are set to increase from £9m to £19m.
The Council is currently considering a number of ways to reduce the increase such as securing longer contracts and moving away from fixed rates to more flexible ways of buying energy.
City of York Council has identified savings of almost £900,000 to offset a £1m loss of income.
The slowdown in the housing market has caused a £210,000 shortfall in local land charges and the income from car parks is on course for a £156,000 deficit.
Cumbria County Council is increasing subsidy to local bus firms.
The cost of the 1.5% increased payment to bus operators will be £30,350 per month (£212,450 for the remainder of the current financial year) and will be on top of an extra £138,075 needed to fund unpredicted inflationary rises on the cost of running the contracts (the predicted RPI rise in the council’s 2008/9 budget was 3.3% but the current RPI rise stands at 4.8%).
l The Welsh Local Government Association (WLGA) said energy and fuel price rises means authorities will see bills go up by 100% in the next year.
It said costs will be met via energy savings, impacting on services, with the public ultimately paying the price.
According to the WLGA, most of the savings will have to be made through energy efficiency measures with some councils already turning off street lights as their first course of action.
