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Council Revenue Shaken to Foundations- Sunday Herald

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Steven Vass, The Sunday Herald, 26 April 2009

\r\nIN CASE anyone was still in doubt, Alistair Darling confirmed that the salad days are over for local councils last week. Not only will they take their share of £5 billion in public-sector "efficiency savings" from next year, an additional £9bn annual cut will be introduced by 2013.
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\r\nSince even this will be insufficient if the chancellor\’s economic forecasts prove too optimistic, there will be no jam today and possibly no dining room furniture tomorrow.
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\r\nIn Scotland, the public sector will shoulder about £500 million of the cuts, and our 32 councils are bracing themselves to hear how much of that finance secretary John Swinney decides is due from them. If they have to swallow their fair share as a proportion of central government funding, it will amount to something like 30%.
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\r\nadvertisementThis is a far cry from the past 10 years, where steadily rising budgets meant that everything from council leaflets in six languages to university education without tuition fees were the order of the day. And worryingly for everyone from council workers to companies hoping to benefit from public tenders, budget cuts are only part of the problem.
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\r\nThe fact is that Scotland\’s councils are already taking a pasting from the recession. Council tax take is falling as unemployment rises, and it is not being topped up by new occupied houses because nobody is building any more.
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\r\nBusiness rates are heading in the same direction due to scores of liquidations around the country, and the planning fees that were once so lucrative have all but disappeared.
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\r\nThe money from short-term investments has fallen because interest rates are so low that it is hardly worth councils bothering to invest, and demand for paid services like parking meters and swimming pools will foreseeably drop as consumer spending continues to slide.
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\r\nCouncil leaders got around these difficulties in previous tough times by putting up property taxes, but there is no chance of that thanks to the concordat struck with Swinney in 2007. This gave them much more discretion over how they spent their annual grant of £12bn, but the quid pro quo was that they froze council tax rates.
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\r\nDisposing of public land is not attractive either now that prices have collapsed. The reduced land values have given banks the same excuse to impose higher interest rates on council debts as they have used in the private sector.
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\r\nThrow in the fact that some such as North Ayrshire and South Lanarkshire also kept their money in Icelandic banks for longer than was wise, jeopardising more than £40m, and the Sunday Herald estimates that the total local government budget could soon be down by several hundred million pounds. If Britain is still in dire straits by 2013 when the full public-spending cuts come into place, the damage to council budgets could be double that.
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\r\nDavid Alston, the budget leader at The Highland Council, says: "The last 10 years were great in terms of public expenditure. But I think we are facing at least a decade of very tight local government funding."
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\r\nThe Highland Council needs a round of cuts like a hole in the head. The council has already found savings of £8m for its near-£600m 2009-10 budget by doing things like cutting back on community arts and sports officers and those involved in adult education. Now it faces having to make the same level of cuts again, totalling £16m, if Swinney asks the councils to share pro rata in Darling\’s efficiencies.
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\r\nThis comes at a time when planning fees are down by around £1m and council tax increases look like being £2m short of projections for the second year running. It is too early to say what is happening to business rates, according to Alston, but there are bad omens, such as the closure of the 354-staff Strathaird fish processing factory in Inverness and big lay-offs by the likes of carbon-fibre maker SGL at Muir of Ord (a loss of almost 100 staff). Investment income is also well down, although Alston says that this money is being used to pay down debts instead and that the net result is neutral.
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\r\nHe says that Highland actually discussed how it would cope with this situation last year because it thought it would have to make similar savings to cope with rising energy costs in these years. The fact that the price of oil fell back below $50 a barrel let it temporarily off the hook, but this situation has been reversed by the wider public finances.
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\r\n"Once you get to the levels of savings we are facing, it\’s cuts," he says "You are not getting that through efficiency."
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\r\nHe foresees changes such as greater co-operation between departments, health care and social work, and services such as grass cutting being outsourced to private companies. Major departments like education and transport will also be uneasy, while pressure to scrap final-salary public-sector pensions regularly threatens to climb up the agenda.
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\r\nThis situation is replicated throughout the country, not least in Glasgow City Council, the country\’s largest, serving a population of almost 600,000 with a budget of over £2bn. Rising energy prices and a £2m drop in planning forced the council to freeze recruitment and non-essential spend late last year to rein in a projected £15m overspend, hitting everybody from teachers to council tax executives. The council is also expecting to be down by £60m from asset sales that will not now go ahead over the next three years.
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\r\nBailie Gordon Matheson, Glasgow City Treasurer, said: "We recently agreed a budget which includes £25m of efficiency savings for this year, and are already working on saving £28m next year. However, the Scottish government has announced that we can expect a freeze from 2010 to 2013 and the impact will be to significantly increase the efficiency savings we will need to find.
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\r\n"As we would normally be expecting a year-on-year increase, I am now anxiously awaiting an indication from the Scottish government about what priority it wants to give to local authorities, and I will be looking for a fair deal for Glasgow City Council."
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\r\nAnother man under the cosh is Bob Myles, the leader at Angus Council. His council\’s budget is just over £300m, serving the likes of Arbroath, Brechin, Forfar and the surrounding rural areas. Planning fees are down by a fifth, although council tax and business rates are holding up so far.
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\r\nBut two months ago he sat down with his fellow councillors to come up with a "pretty tight" budget for the 2009-10 financial year that included cuts of around 2% and paying down £850,000 of the £126m debts from the previous SNP administration for the second year running. Efforts to save money have included putting more emphasis on keeping old people at home rather than in council care, rationalising the waste system and putting service providers under the same roof. Hence the police and council workers share office space in the town of Monifieth, as do social workers and health workers in Forfar, and the council is looking into doing this much more widely across the Angus burgh.
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\r\n"We know it\’s going to get much worse in years to come, hence we are trying to reduce our borrowing," says Myles.
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\r\nAs business leaders will know only too well, a crisis in the public sector will only feed the troubles in the private sector. Public-sector redundancies would hit consumer demand, particularly in Scotland where the state is a proportionately larger employer than elsewhere in the UK.
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\r\nGroups like housebuilders are also depending on local authorities to prop them up with affordable housing tenders now that private housing has hit the skids. Council borrowing for this expense was already looking uncertain with the collapse of the Dunfermline Building Society, the second-largest lender in the sector, and it is yet another of a number of areas that could face budget cuts in future.
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\r\nKen Ross, chairman of Glasgow commercial/residential developer Elphinstone, believes it is essential for councils to bear in mind the important role of housebuilding to economic development at this time.
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\r\n"In past recessions, from the 1930s onwards, housebuilding actively fuelled recoveries. This is money spent in the domestic market, so it flows back into the local community," he says.
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\r\nUntil now, he has been frustrated by many authorities\’ approach to economic development, pointing to the fact that the average spend is only 1.6% of council budgets, compared to huge chunks for mainstays like education and social work.
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\r\n"Everybody likes to see more money spent on education, health and culture, but we are in a time of reduced budgets so choices have to be made. We have got to spend money where the returns are going to be made," he says.
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\r\nHe singles out Glasgow and Edinburgh city councils for praise for the way they have developed economic plans to tackle the recession, entreating other councils to change their cultures and follow suit. The turgid planning system, which can take up to seven years to see applications approved, comes in for its usual stiff criticism.
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\r\nThis caricature applies more to some councils than to others. But what everyone agrees is that there has never been a tougher time to be a council leader.
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\r\nAs Alston says: "What worries me is that to a considerable extent the public sector is being protected through the recession. It\’s what comes afterwards that\’s really worrying."
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\r\nFor those council posts tasked with making these choices, it goes without saying that fence-sitters and those with faint hearts need not apply.
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