What if a Local Authority doesn’t make the savings? What if the ambitious efficiency targets turn out to be hopelessly unrealistic? What if the savings plans turn out to be undeliverable? What if it’s all is a lot messier, a lot more complicated and takes a lot more time than assumed? What if the Local Authority simply runs out of money and can’t pay its bills? It has never happened but then who would have thought banks could go bust?
It happened in New York in the 1970s. Well actually it didn’t but it came close the teachers didn’t get paid, creditors didn’t get paid and the yellow cab drivers complained about the holes in the road but central government bail them out in the end. Several American cites have gone bankrupt .Police and fire services still operated but city hall got protection from its creators. In other words it delayed indefinitely paying some bills and negotiated a part repayment of other bills. The real damage was to the reputation of the city no one wanted to invest there and of course there was no money for capital projects like repairing roads and bridges. More recently the state of California claimed to be bust and unable to pay its bills.
Could it happen here? I did hear of a social service department that was over spent and told residential home owners that it couldn’t pay the fees for elderly residents .I think they simply missed the payments for March. We have already heard from Liverpool and Leeds that the combined effects of budget cuts, loss of public sector jobs and the recession will have a disproportionate effect on their local economy. Clearly some local economies are more dependent on the public sector as an employer than others even so it is hard to imagine the likes of big cities like Leeds and Birmingham and large local authorities like Nottinghamshire becoming bankrupt. Like the banks they are too big to be allowed to go bust and like in the USA central government would have to step in. But what about all those small District councils their budgets are comparatively small may be £30 million as opposed to a big city budget of a billion pounds but a 20 to 30% budget reduction is still a massive cut and they have fewer options other than closing down all their swimming pools, sports centres and out sourcing all their support services they don’t have much room for manoeuvre if the bins are still to be empted.
If you think this is all a bit farfetched well one well know accountancy firm has already predicted a local authority will become bankrupt during the next couple of years.
Blair McPherson was until recently a Director in a large local authority he is author of Equipping Managers for an Uncertain Future due to be published by www.russellhouse.co.uk in November 2010.