The National Institute of Economic and Social Research reported on 24 July that the UK would narrowly avoid falling into a recession this year.
But experts remain divided over the issue and, like chancellor, Alistair Darling, and the Bank of England, local government professionals are preparing battle plans in the event that the ‘R’ word hits these shores.
A recession generally means two successive quarters of negative economic growth. But some macroeconomists claim that any period of declining gross domestic product (GDP) qualifies – putting the UK on course for a recession shortly.
Whatever the technical definition, it is clear that the US-inspired credit crunch, and its effect on the UK housing market and consumer spending – and the Treasury’s subsequent tax income – have dominated national and local policy-makers’ thinking throughout 2008.
This has presented a new and peculiar set of challenges to senior local authority personnel. The last UK recession occurred in the early 1990s, and many chief executives, for example, have not yet tackled a sharp economic downturn.
David Clark, director general of SOLACE, who was a councillor during a larger recession in the 1980s, is among a select group who have.
By his own admission, Mr Clark says he barely coped with the 1980s downturn because he lacked experience. Older and wiser, he is now working alongside the likes of Audit Commission chief executive, Steve Bundred, and the Local Government Association, to produce guidance for unacquainted officials.
Mr Clark, and Birmingham City Council’s chief executive, Steven Hughes, are quick to point out that few expect the current downturn to be as devastating as the declines 20 years ago. In Birmingham alone, 200,000 manufacturing jobs were lost during the 1980s, but the conditions which created such turmoil, including spiralling inflation, do not currently exist.
Nonetheless, there will be fallout. The impact of the credit crunch on councils’ finances was laid bare at Harrogate last week.
Council leader, Mike Gardner, says the authority’s coffers are ‘a bit dire’, as a consequence of declining revenues.
Mr Gardner has approved a freeze on new expenditures to avoid using up reserves.
‘We’ve been saving money for a rainy day, and that rainy day has come. We don’t have a financial crisis at the moment, but we want to prevent one,’ he says.
Mr Clark says: ‘In terms of its impact on local government, the current downturn has really been about a combination of fragile employment in some localities, astonishing rises in fuel prices, and the fact that central government says it has run out of money, leaving grant settlements tight.’
The result of all this is clear.
While this is no return to the 1980s, unemployment is expected to rise across parts of the UK, leaving local authorities and their partners to deal with increasing welfare dependency – to name just one looming problem.
Some will wrestle with changing ‘NEETs’ – youths not in education, employment or training – child poverty and crime rates. So it is notable that all three issues featured highly in councils’ self-imposed targets under the new local area agreements (LAAs) programme – a sure sign that town halls are conscious of tough times ahead.
One former welfare minister told The MJ that Whitehall had welcomed councils’ LAA priorities ‘in part because it showed an eagerness to tackle difficult policies in times of tight financial settlements’.
So, understanding the emerging policy challenge is not a problem. But what should senior personnel do to ease communities through troubled times?
Mr Clark says that strong leadership – by elected members and senior officials – is required.
‘In particular, single-party leadership can be critical, as it creates certainty in decision-making. Considered policy planning and implementation is important… but hesitancy can undermine localities during tough times.’ Watchful eyes will turn to those authorities with no overall political control, such as Reading, Coventry and Blackburn with Darwen.
Unsurprisingly, Mr Clark says that the most important requirement is the need for officials to ration the already-scarce tax pound more effectively.
‘This assumes greater importance during tough times, when central government’s financial support for some activities dries up,’ he says. ‘How skilled will this generation be at rationing in the toughest economic climate?
There’s a key difference.’ The damaging effects of a downturn on local authority finances makes this challenge even more difficult. Mr Hughes says it’s easy to forget that income flows below national grants are tight – and limit cash available for services.
‘Council tax levels… must remain affordable. Birmingham has committed to keeping local rises below 2% in the past three years. But income flows from elsewhere have slowed, right down to lower receipts from land search fees as a result of the slow housing market.’
Beyond this, Mr Clark says there is no one-size-fits-all preparation. Local labour economics throw up different challenges at regional, local and even ward level. For example, it is impossible to compare the challenges facing a rural economy such as Northumberland’s, where many residents’ futures are at the mercy of rising fuel prices, with that of a London borough, where transport is less of a concern. Daisy Benson, a Lib Dem councillor at Reading Council, says the big impact of the credit crunch locally is the lack of affordable and social housing, caused by the uncertain futures of house builders. She is concerned that a recession could inflate Reading’s large homeless figures.
Mr Clark and Ms Hughes warn that all councils should create sufficient flexibility within their operational structures to tackle these diverse challenges.
To some in local government, ‘operational flexibility’ hints at further outsourcing and job cuts. But Mr Clark says that while outsourcing and closer working with partner bodies is now a core part of any town hall’s service delivery, ‘flexibility’ also means the ability to adapt to challenges in-house.
‘Officials overseeing key services must be open-minded about how to respond to local threats. Often it’s about speeding up internal processes to get an authority working faster, more efficiently and effectively. If you don’t have flexibility built into your structures now, you will struggle during a recession.’
But that need not mean internal job cuts. ‘Where jobs will be the problem, then reacting by slashing costs by reducing council staff locally is not the answer – you’ll just be making matters worse.’
Other experts warn that officers should not see improved rationing and greater flexibility as an excuse to attack core services to save money.
Chris Leslie, director of the New Local Government Network, says: ‘At this point in the economic cycle, local government is perhaps best placed to ameliorate some of the worst effects of the downturn for the public.
‘Social justice policies become important. More than ever, great care must be taken to protect core services that support communities and residents.’
As if on queue, the LGA has said it is monitoring the potential collapse of external providers, such as care home companies.
Instead of eroding core services, the NLGN argues that councils should forge ahead with other money-saving initiatives, such as the shared services agenda.
Above all, however, Mr Clark advises that officials ‘hold their nerve’.
He says: ‘The economy is cyclical and we’ll all emerge from this bad period. It’s easy to panic and make poor, short-term decisions. But we can act in the interest of localities to ensure a smoother transition back to better times.’
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Ten tips on coping with recession:
be decisive. Show community-wide leadership ration spending priorities undertake risk-based assessments of threats protect core services be responsive to the needs of local employers understand what your local economy is sensitive to – eg, fuel prices ensure you have flexible staff and operational structures share services, share burdens understand that you can’t turn the economic tide |
A recession generally means two successive quarters of negative economic growth. But some macroeconomists claim that any period of declining gross domestic product (GDP) qualifies – putting the UK on course for a recession shortly.
Whatever the technical definition, it is clear that the US-inspired credit crunch, and its effect on the UK housing market and consumer spending – and the Treasury’s subsequent tax income – have dominated national and local policy-makers’ thinking throughout 2008.
This has presented a new and peculiar set of challenges to senior local authority personnel. The last UK recession occurred in the early 1990s, and many chief executives, for example, have not yet tackled a sharp economic downturn.
David Clark, director general of SOLACE, who was a councillor during a larger recession in the 1980s, is among a select group who have.
By his own admission, Mr Clark says he barely coped with the 1980s downturn because he lacked experience. Older and wiser, he is now working alongside the likes of Audit Commission chief executive, Steve Bundred, and the Local Government Association, to produce guidance for unacquainted officials.
Mr Clark, and Birmingham City Council’s chief executive, Steven Hughes, are quick to point out that few expect the current downturn to be as devastating as the declines 20 years ago. In Birmingham alone, 200,000 manufacturing jobs were lost during the 1980s, but the conditions which created such turmoil, including spiralling inflation, do not currently exist.
Nonetheless, there will be fallout. The impact of the credit crunch on councils’ finances was laid bare at Harrogate last week.
Council leader, Mike Gardner, says the authority’s coffers are ‘a bit dire’, as a consequence of declining revenues.
Mr Gardner has approved a freeze on new expenditures to avoid using up reserves.
‘We’ve been saving money for a rainy day, and that rainy day has come. We don’t have a financial crisis at the moment, but we want to prevent one,’ he says.
Mr Clark says: ‘In terms of its impact on local government, the current downturn has really been about a combination of fragile employment in some localities, astonishing rises in fuel prices, and the fact that central government says it has run out of money, leaving grant settlements tight.’
The result of all this is clear.
While this is no return to the 1980s, unemployment is expected to rise across parts of the UK, leaving local authorities and their partners to deal with increasing welfare dependency – to name just one looming problem.
Some will wrestle with changing ‘NEETs’ – youths not in education, employment or training – child poverty and crime rates. So it is notable that all three issues featured highly in councils’ self-imposed targets under the new local area agreements (LAAs) programme – a sure sign that town halls are conscious of tough times ahead.
One former welfare minister told The MJ that Whitehall had welcomed councils’ LAA priorities ‘in part because it showed an eagerness to tackle difficult policies in times of tight financial settlements’.
So, understanding the emerging policy challenge is not a problem. But what should senior personnel do to ease communities through troubled times?
Mr Clark says that strong leadership – by elected members and senior officials – is required.
‘In particular, single-party leadership can be critical, as it creates certainty in decision-making. Considered policy planning and implementation is important… but hesitancy can undermine localities during tough times.’ Watchful eyes will turn to those authorities with no overall political control, such as Reading, Coventry and Blackburn with Darwen.
Unsurprisingly, Mr Clark says that the most important requirement is the need for officials to ration the already-scarce tax pound more effectively.
‘This assumes greater importance during tough times, when central government’s financial support for some activities dries up,’ he says. ‘How skilled will this generation be at rationing in the toughest economic climate?
There’s a key difference.’ The damaging effects of a downturn on local authority finances makes this challenge even more difficult. Mr Hughes says it’s easy to forget that income flows below national grants are tight – and limit cash available for services.
‘Council tax levels… must remain affordable. Birmingham has committed to keeping local rises below 2% in the past three years. But income flows from elsewhere have slowed, right down to lower receipts from land search fees as a result of the slow housing market.’
Beyond this, Mr Clark says there is no one-size-fits-all preparation. Local labour economics throw up different challenges at regional, local and even ward level. For example, it is impossible to compare the challenges facing a rural economy such as Northumberland’s, where many residents’ futures are at the mercy of rising fuel prices, with that of a London borough, where transport is less of a concern. Daisy Benson, a Lib Dem councillor at Reading Council, says the big impact of the credit crunch locally is the lack of affordable and social housing, caused by the uncertain futures of house builders. She is concerned that a recession could inflate Reading’s large homeless figures.
Mr Clark and Ms Hughes warn that all councils should create sufficient flexibility within their operational structures to tackle these diverse challenges.
To some in local government, ‘operational flexibility’ hints at further outsourcing and job cuts. But Mr Clark says that while outsourcing and closer working with partner bodies is now a core part of any town hall’s service delivery, ‘flexibility’ also means the ability to adapt to challenges in-house.
‘Officials overseeing key services must be open-minded about how to respond to local threats. Often it’s about speeding up internal processes to get an authority working faster, more efficiently and effectively. If you don’t have flexibility built into your structures now, you will struggle during a recession.’
But that need not mean internal job cuts. ‘Where jobs will be the problem, then reacting by slashing costs by reducing council staff locally is not the answer – you’ll just be making matters worse.’
Other experts warn that officers should not see improved rationing and greater flexibility as an excuse to attack core services to save money.
Chris Leslie, director of the New Local Government Network, says: ‘At this point in the economic cycle, local government is perhaps best placed to ameliorate some of the worst effects of the downturn for the public.
‘Social justice policies become important. More than ever, great care must be taken to protect core services that support communities and residents.’
As if on queue, the LGA has said it is monitoring the potential collapse of external providers, such as care home companies.
Instead of eroding core services, the NLGN argues that councils should forge ahead with other money-saving initiatives, such as the shared services agenda.
Above all, however, Mr Clark advises that officials ‘hold their nerve’.
He says: ‘The economy is cyclical and we’ll all emerge from this bad period. It’s easy to panic and make poor, short-term decisions. But we can act in the interest of localities to ensure a smoother transition back to better times.’
