Councils ‘may need cash bailout’

DEMAND FOR services combined with a squeeze on funding is likely to force some councils to ask the Government for a financial bailout in the coming years, experts have warned.

Councils are facing a major squeeze on their finances.

Council officers in the region have been urged to embark on major changes to prepare for a long term future of public spending restraint.

A report by business consultancy Deloitte and the Reform thinktank says the public sector cannot just cut costs as it has over the last five years and needs to fundamentally change the way it delivers services.

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Ed Roddis, head of government and public sector research at business consultancy firm Deloitte and one of the authors of the report, said: “In local government in the next few years we could start to see councils in areas that have particular challenges becoming financially unviable which will probably require interventions from central government.”

In his recent Spending Review, George Osborne offered councils some limited freedoms to raise taxes to help meet the costs of care for the elderly, one of the biggest pressures on town hall budgets.

But council funding was also one of the areas of government spending to be hardest hit as the Chancellor set out plans to balance the country’s books over the next four years.

Former Bradford Council chief executive Tony Reeves, now a partner at Deloitte, said the impact on individual councils would only be clear once funding settlements are announced later this month.

He said: “I am not criticising the move to allow local authorities to increase council tax by two per cent to fund social care.

“But the messages from local government are that in and of itself that won’t close the gap in funding in social care.

“Areas with a high council tax base will benefit most and areas with the lower tax bases will benefit least.”

Mr Reeves said the last five years had seen the Government moving away from using deprivation measures to decide levels of council funding and a continuation of that trend mean cuts “would be much harder felt in poorer parts of the North and Midlands.”

With the Government not expected to eradicate the deficit until 2020, Mr Reeves said the Spending Review should underline to town hall leaders that they should not expect the purse strings to be loosened in the near future.

“There’s not going to be a period in the next decade or so of real terms growth in public spending in our view,” he said.

“This needs to be the new normal, operating in this environment, and you cannot cut out of this. You need to innovate at a local level.”

Public sector leaders interviewed for the report told of the impact of budgets cuts on services and morale.

But they also reported that their organisations had become more efficient and productive as a result.

Andrew Haldenby, director at Reform and one of the reports’ authors, said: “The question is whether it will be as easy for the Government to drive productivity when it is protecting so much of the budget?”

The findings of the “State of the State” report were presented to an audience of local government figures at Deloitte’s office in Leeds.