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For cash-strapped local authorities, watching the Government tackle the credit crunch during the past few weeks has been an illuminating experience. After months of being told the cupboard is bare and they would just have to fund extra costs from efficiency savings, councils watched in disbelief as the equivalent of a decade of local government funding was pledged in one day to the banks. Having tackled the credit crisis with public money, ministers have now turned to the wider economy and rediscovered Keynes, again promising wads of cash, hitherto non-existent when, for example, they were asked to help local authorities meet extra social care costs. Nothing has changed in the public finances to justify this outpouring of funding which, as this week's figures prove, continue to deteriorate. What, however, has changed is the wider economic picture and the Government, with justification and the wisdom of the 1930s behind it, believes this is not the time to further depress the economy by squeezing taxpayers even more. While the credit crunch has dried up the flow of money, recent rises in fuel costs, including this year's 50% increase in gas, 35% of which came on stream in the past quarter, have also drained millions of pounds out of the economy. The average 4% rise in council tax is a beacon of rectitude in comparison. So, ministers believe the public sector needs to step in to plug the gap and renew confidence. In the short term, they are right. But they are also missing a trick. Local authorities have a big impact on their local economies, and if the Government wants to prevent full-blown recession, councils can play a major part by injecting extra spending into their communities. The Treasury mandarins managed to come up with £800bn to help the banks. Surely now they can apply their expertise to loosening local government purse-strings, adjusting fiscal rules to enable more borrowing, even for revenue spending, and thus inject money into not one, but hundreds of local economies. Michael Burton, Editor, The MJ

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WHITEHALL

Keynes makes a comeback

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