Recession causes sharp drop in council income

LGA press release - 11 August 2009

New figures published today show that town halls have been hit by a £4bn deficit in income over the course of the last two years, currently equivalent to losing out on almost £11m every day in this year compared to financial year 2007/08.

Figures revealed by the Local Government Association, which represents over 350 councils in England, show that  some key council income flows have been hit hard by a combination of the depressed property market and low interest rates.

Estimates based on the research show that in the last year, income from:

• Sales of land, council buildings and other capital projects have fallen by £2.7bn since 2007/08
• Interest earned on councils’ cash deposits has fallen by £1.3bn since 2007/08 due to low interest rates.

Despite the squeeze on their finances, other statistics published by the LGA show that councils are continuing to plough significant resources into helping people and businesses through the recession.

A sample survey of 202 council leaders and chief executives shows that over the last six months:

• One in five councils is providing local people with help with their mortgage payments
• Eight in ten councils have concentrated resources on ensuring local people receive take up of the benefits they are eligible for
• Half of councils have set up or supported credit unions to help local people borrow money from a reliable source
• One in four councils has allowed businesses to defer paying their rates
• Seven in ten councils have provided or plan to provide tailored support to local business

Sir Jeremy Beecham, Vice-Chairman of the LGA, said:

”Town halls are being hit by a perfect storm caused by the recession. Sources of income have dropped sharply at a time when more and more people are turning to councils to help them through tough times.

“Town halls are feeling the effect of recession in exactly the same way as hard pressed homeowners and families. Low interest rates mean councils are much less able to rely on their savings, plummeting house and land prices have hit hard and income from leisure centres and a range of other services has fallen.

“At this time of repossessions and redundancies, even more people need the vital support that only councils can provide. Town halls are taking decisive action to protect local people and businesses from the worst effects of the recession. They are helping to keep people in their own homes, offering support to the unemployed and helping small companies stay afloat.

“The tough economic outlook is forcing councils to take a look at almost every aspect of their finances. Almost 7,000 jobs have gone in the last six months alone and as the effects of the recession continue to be felt, we fully expect councils to keep on cutting jobs over the course of the next twelve months. Despite this, local government has delivered the lowest council tax rise for over a decade and is continuing to make big efficiency savings.

"Young people are being hit particularly hard by the recession, with hundreds of thousands finding themselves unemployed and not in any kind of training.  The LGA has committed to working with local authorities to increase the number of council apprenticeships by 7,500."

ends

NOTES TO EDITORS

Examples of councils helping people and businesses through the recession are:

• Essex County Council has launched ‘Banking  on Essex’, to help firms struggling to get finance during the recession. The council is setting aside £50m for loans of up to £100,000 for small and medium-sized businesses.
• Knowsley Council, in partnership with Vertex, is acting as a recruitment agent to find 600 workers for a local company that has vacancies in order to get residents into full time employment.
• Stevenage Council has supported its local credit union to help people gain access to reliable credit during the recession. The Council has sponsored weekly drop-in sessions at its customer service centre and pays the credit union’s rent. 

2.. The tables in the technical note below show that in 2007/08 authorities received 5.5 billion from interest on balances and capital receipts. This source of this figure is Cipfa stats, 2007/08, Capital Expenditure and Treasury Management Statistics. The LGA undertook a survey of Finance Directors across England between 15 May and 4 July 2009 about the financial impact of the slowdown. 88 authorities responded to the survey (a response rate of 25 per cent, of which 55 (63 per cent) were district authorities. 78 respondents answered the capital receipts question and 84 answered the interest on balances question. Using the results of this survey and assuming that other councils will be affected in the same way as respondents, we have inferred that the combined budget for capital receipts and interest on balances in 2009/10 will fall £4 billion lower than budgets just two years earlier. For further details please refer to the technical note: http://www.lga.gov.uk/lga/aio/2812483

Author: LGA Media Team
Contact: Tel 020 7664 3333