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Unemployment – and not banking – may be the biggest problem facing local authorities in coming months, as David Clark explains. Iceland is the least of our problems. With the almost-daily increase in the amount councils, and the Audit Commission, have invested in collapsing Icelandic banks, you could be forgiven for thinking this was the biggest issue facing local authorities. In fact, the highest unemployment figures for 17 years may have a far greater effect. The impact a recession will have on the communities local government serves, and on councils themselves, will be far greater than any challenges posed by the Icelandic crisis. The biggest issues now are keeping people in their jobs and in their homes. We are approaching a tipping point where the resources available to local government are stretched precisely at a time that communities are looking to their local authorities for extra support. So, what are the real issues which will frame the whole picture of the UK facing a downturn? First, let's look at the community needs which require a local authority response. We know that there is a shortage of decent and affordable housing, and that repossessions in the private sector are on the rise. In addition, we know there are millions of individuals and families who will be facing fuel poverty this year, and that ordinary families have been hit by rising fuel costs both in their homes and in their personal transport. Perhaps we are also experiencing a new poor – people who are in work but find they cannot pay their bills. The classic local government response to a recession, of helping people find work, will not be enough on its own. The lack of social housing and the number of repossessions will, of course, lead to a rise in homelessness, and local authorities are already seeing other welfare payments going up, with increasing demand for free school meals. Recession and downturn also lead to an increase in social friction in communities, and in the home, financial concerns are one of the key reasons for family breakdowns, which often require local authority support. Local councils across the country can, therefore, expect increasing demands on their' welfare and other services. But, at the same time, these institutions are experiencing huge pressures on their budgets. The announcement in the Comprehensive Spending Review 2007 that in the next two years local authority grants will rise by a mere 0.5% annually was seen as bad at the time. Now, no-one can confirm this meagre increase is even achievable, not least because the income from the national non-domestic rate appears to be down some £1bn in the current year. Local authorities, too, are very vulnerable to increases in fuel prices, with one quite small local authority facing an electricity bill increase of £1.6m in the current year for streetlighting alone. It may well be that local authorities will also be facing a rocky year in industrial relations terms as they try to maintain their pension schemes and contain wage costs at a time of rising inflation. But there are also hidden costs to the local authority. Many regeneration plans are based on what are known as Section 106 agreements, whereby developers provide social housing or other services as a part of their land-development strategies. These plans inevitably collapse where developers find there is little market demand for their developments, or where they cannot raise the capital. In smaller authorities, this has a double impact, given that they have quite a degree of dependency on fee income from developments. This is all well and good in a time of growth, but means that yet another revenue stream to these local authorities is closed off in a time of recession. With rising unemployment, increasing social need and diminishing tax yield and income, local authorities may find themselves very shortly between a rock and a hard place. While in no way wishing to diminish the issues facing those local authorities which have money in Icelandic banks, it may be that in a majority of cases, this could be the least of their worries. David Clark is director-general SOLACE

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WHITEHALL

Responding to recession

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