WIREDGOV

Councils must think bigger and act quicker to reduce costs, or funding cuts will cause more damage to services and jobs than necessary.

This is the stark warning in Surviving the Crunch, a report published today by the Audit Commission, tracing the effects of the economic downturn on council services.

It says most councils have been cushioned from the worst of the recession because the government stuck to its three-year funding settlement. But this ends in 2011. On average, councils receive two-thirds of their income from grants.

Even though the timing and extent of cuts in government support are unclear, the report says that councils must prepare now for leaner times. The sooner they get clarity the better. The best-prepared councils are taking action now to preserve services in the years ahead, but others have yet to make any financial plans beyond 2011.

The recession pushed up demand for benefits and social assistance, while longer term pressures on costs continued unabated, for example from the growing numbers of older citizens.

Staff cuts may be inevitable, but keeping the pay bill down through pay freezes and other measures can help to preserve jobs and lessen the impact on services, families and local economies.

Michael O'Higgins, Chairman of the Audit Commission, said:

'Cuts in public spending are coming. Councils that innovate and begin planning now for a tougher environment will stand the best chance of helping their local residents.

'The clock is ticking, and everyone needs to face this new reality. Some councils are using the last year of 2008/2011 planned funding levels to prepare for harder times ahead, but it is worrying that others are reluctant to look beyond next year.

'Improving efficiency, providing the same services for less money, is no longer enough. Councils need more ambitious plans to transform and protect services. Local leaders must be prepared to take tough decisions.'

Some places and some people will suffer more than others. In many parts of the country councils, schools, police, fire and NHS are among the largest employers. As they look to cut costs, they also must consider the impact of job losses on their communities.

The report graphically illustrates how important the public sector is as an employer in parts of the country, notably on Humberside, Merseyside and in the North-East.

In some places more than 35 per cent of all working women have jobs in councils, the fire service, police, schools or the NHS (see figure 16 on page 56). The research points to a potential double whammy for women who work for local public bodies, where their families may have already been hit by private sector job losses.

Cuts in income from planning applications, investment interest and capital receipts have hit district councils in particular.

Mr O’Higgins continued:

'We have some great examples of innovation. Councils such as Sunderland, Westminster and East Riding are ahead of the game. Taking a longer view is a recipe for success.'

Notes to editors

Among the most urgent pressures on councils are council tax benefit claims, child poverty and youth unemployment. Longer term pressures include the need for more housing, the ageing population, the rising birth rate, and the cost of child protection. In addition the collapse in new home building and private finance for regeneration are storing up problems for the future. The public-private model for funding regeneration - roads, parks, community facilities - no longer works as it did before the credit crunch.

Small councils have seen a drop in income from planning applications, down 22 per cent; investment interest, down £544 million; and capital receipts, down from £300 million a month to under £100 million.

The report recommends that councils tell the public and their staff about how they are planning to cope with the full effects of the recession.

Among its conclusions are:

• The financial impact of the recession has been manageable for most councils up to January 2010, but some councils, often districts, have been hit hard by falling local income.
• The future for local government finances is challenging, though there is little clarity about the size of any public spending cuts.
• Councils should be responding now to minimise the impact on frontline services.
• Most councils are making some savings and planning more, but the quality of planning is variable.
• Public sector job cuts could damage local economies. All options for reducing the pay bill should be considered.

Among its recommendations are:

Councils should:

• prepare now for the leaner times ahead
• ensure that members and officers provide strong leadership over difficult resource allocation decisions
• consider all options for managing pay bills, not only staff cuts.

Government should:

• provide early clarity on expected future levels of council, police, fire, health and education funding to enable effective forward planning
• recognise the uncertainty around the future financing of regeneration, sustainable communities and affordable housing strategies in current market conditions, and consider alternative funding models

Case studies

Some councils have a good track record of change and are ambitious about their plans for the future:

Sunderland City Council has a target of £50 million savings over four years. It recognises that major change takes time and that staff need support to deliver. Their 'Sunderland way of working' programme includes staff retraining and service redesign.

The City of Westminster has a long term planned savings programme. It was able to keep to this in 2008./09, finding £6 million from efficiencies despite losing income because of the recession. Westminster works very closely with local health services, with 140 jointly-funded staff, and is working on more joint contracts for the future.

Many are making savings through better procurement (buying goods and services):

Sunderland City Council saved £1.5 million this way in 2009/10.

By January 2010 St Edmundsbury District Council's new procurement officer, appointed in 2009, had saved £200,000. Some of these savings come from joint working - for example, 11 councils got together to make savings on insurance.

Some councils are making savings through partnerships:

The London Boroughs of Merton and Sutton now share a human resources service, that has saved them £500,000.

Smaller district councils can get important savings from working together. Adur and Worthing District Councils now have a joint chief executive and joint management team. Through reviewing services they expect to save £860,000 in 2009/10 and over £1.2 million by 2011/12.

Despite less income from land and building sales, some councils have continued capital spending to improve local services and provide construction jobs:

East Riding Council has looked carefully at what it can borrow and what capital it has. Despite lower sales last year it will be spending £100 million in 2009/10 and £130 million in 2011/12.

The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone. Our work across local government, health, housing, community safety and fire and rescue services means that we have a unique perspective. We promote value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies. As a force for improvement, we work in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.

For further information

MARK NICHOLSON
Media Relations Manager, Audit Commission Millbank Tower, London SW1P 4HQ

Direct line 0844 798 2135 / 0207 166 2135
24hr Press line 0844 798 2128
Mobile 07813 038132
Email m-nicholson@audit-commission.gov.uk