All this gloom and doom will produce service pressures on local authorities and it is not easy to predict how and how hard the impacts will be. There are bound to be significant regional variations and even ones more local than that.

Everybody is aware by now of the deepening credit crisis and the abrupt turnaround in the economic situation. Until very recently, most commentators were saying that the underlying strength of the economy would see Britain through the present difficulty. But of late, some commentators are much more circumspect. It is the combination of rising inflation, increased worklessness, volatility and uncertainty in interest rates, a shortage of credit and a severe downturn in the housing market which are conspiring to undermine economic confidence and put at risk the relative prosperity of the last 10-15 years.

Things are looking decidedly shaky in the housing finance market. Sir James Crosby, former Chief Executive of HBOS has been asked by the Chancellor to review the situation and his interim report paints a bleak picture. He concludes that the shortage of mortgage finance will continue through 2008 into 2009 and 2010. The market is shrinking as banks and building societies either withdraw from issuing mortgages or restrict the supply to the top tier of creditworthy applicants. In addition many people, such as mortgage brokers, are leaving the market in numbers.

The most worrying point for us in the report was the statement that banks would have to find around £40 billion for each of the next three years simply to refinance the mortgages already in the UK market which were originally financed by issuing Residential Mortgage Backed Securities (RMBS) –whose average life is 3 years. This is before they begin to advance new loans: and it is new loans which may be the essential key to unlocking the blockages in the housing market at present. A surge of new purchasers entering the depressed market might well be sufficient to unlock sales and purchases further up the value chain of this most conservative and cautious of markets. Even a trickle would help.

The report also recommends extending the Bank of England’s special liquidity scheme, which was an initiative to help unlock financial markets and to increase liquidity available to banks and building societies. Essentially, under this scheme, banks are able to swap illiquid RMBS assets, issued before 2007, for very liquid Treasury Bills. However, this does not deal with the problem that banks need to refinance these assets as they mature. It also does not deal with mortgage portfolios issued after 2006.

What would really help would be if the markets could regain some composure and confidence so that Residential Mortgage Backed Securities could be issued without fear of immediate dire consequences for the financial institution with the courage or foolhardiness to buy them. The banks would then have funds to extend new mortgages. But, as things stand, the toxic fallout from the sub-prime mortgages issued in the US is inhibiting anyone who might otherwise be prepared to go into this market.

Compounding the pressure, mortgage approvals for June were down to 36,000, a fall of 70% on the position this time last year. It is not easy to see when this figure might start to improve. Meanwhile, there will be increasing issues associated with people who need to move for work reasons but who are unable to. This, in itself can cause a slow down in a modern economy and is a form of structural inefficiency for which there are no easy alternative remedies.

It is absurd to think that the mortgage market may be locked up for years, preventing a family from planning its future with any kind of certainty. The family planning cycle is a lot shorter than the current financial planning cycle. The prospects of moving to a larger house when the family grows in size are remote for most people in the current circumstances.

All this gloom and doom will produce service pressures on local authorities and it is not easy to predict how and how hard the impacts will be. There are bound to be significant regional variations and even ones more local than that. Such issues are the territory of the Chief Executive and the Director of Finance and these two officers will be leading the response to these pressures.

The Director of Finance will be wondering how serious the inflationary pressures will be on this year’s budget, as well as next year’s. It is certain that budget heads for oil, gas, electricity and other fuels will be significantly overspent. Unless, there is some form of price hedging in place to provide temporary cover, the overspending is likely to be of the order of 20% or more. There is upward pressure on pay, although this is more likely to hit harder in later years. It is certainly a worry that there is disharmony over pay in the public sector, because inflation is running ahead of the settlements.

The budgetary relief usually experienced on turnover of staff is likely to be reduced as people find it more difficult to move house. But when turnover does occur, the cost of replacing important members of staff is likely to rise as people ask for greater inducements to change employer. We recall a severe shortage of Environmental Health Officers, which hit the North West particularly hard and led to a competition by some authorities, in providing higher salaries and benefits such as cars.

Central to this line of thinking is whether the hard won efficiency savings will be wiped out by these price changes, sufficient to put the Medium Term Financial Plan in trouble.

Most Directors of Finance will be framing the budget for next year and beginning to ponder on the less immediate, but no less significant impacts of the change in the economic landscape. Key questions will be:

Will we be as successful in collecting local taxes, rents and fees and charges as we have been in recent years?

Can we contain the impact of inflation and higher interest charges?

What will be the effect on the capital programme of the slow down in the construction industry?

Can we help to finance the capital programme from capital receipts if the market is flat and land and property prices are falling?

Will there be added pressures on local services, particularly those usually considered to be demand-led?

The Chief Executive will be wondering about these issues too and asking the Director of Finance to do some crystal ball gazing to try and assess the likely impacts of all this. He or she will also be thinking about service pressures and may be asking heads of services for their perceptions. Assuming we are in a multi-purpose authority, this is a selection of the more specific issues likely to be on the agenda.

Housing: Increase in homelessness, reduction in affordable housing, increased demand for housing benefits, difficulties in paying rents, increased repair costs, reduced private sector rented sector as the buy-to-let market suffers, reduction in shared equity schemes, increases in private sector rents, harder to get regeneration schemes moving, increase in overcrowding in private rented sector, increased demand for social housing.

Education: Increased school meals costs, family pressures impacting on individual children, increased premises costs, reduced financial support from parents.

Social services: Possible increase in family breakdown, increased children taken into care, increased demand for financial advice, pressure on grants, possible increased requests for elderly relatives to be taken into care, possible increased drug and substance abuse.

Planning: Shortage of professional staff, reduction in planning fees, reduced opportunities for planning gain, particularly affordable housing.

Leisure: Reduced fees and charges, reduced vending income, increased premises costs, especially heating.

Environmental Health: Slower progress on healthy living, increase in marginal
businesses and street/market traders, greater risk of illegal and sharp practices, increased general health risks.

Transport: Materials costs for repairs and renewals, increased steel costs for street lighting, possible increased demand for subsidised travel as people increasingly opt for public transport.

There will be other nagging concerns about unforeseen impacts on the lives of people in the community and what the authority might be able to do to mitigate them. In recent years partnership working has become the norm rather than the exception and there will be a worry that partners may well be facing severe financial pressures which may force them to consider their contribution to important initiatives such as community safety, community health, environment etc. The private sector is likely to be less able to play a full part in support to the Community Strategy, and even the trusty voluntary sector may find that volunteers are increasingly looking for paid employment to help the family budget.

One useful way of trying to assess the impact of national events on the local scene is to ask some of the local partners about their experiences. A good example of this is the Citizen’s Advice Bureau whose invaluable work in the community can offer important early warning about mortgage repossessions and other debt problems. There are other associations and institutions which can provide important elements to help populate the bigger picture.

Chief Officers in local government are well-attuned to these types of changes and will be able to provide valuable contributions to the service implications likely to be experienced and the financial implications for the Council. This can give early warning to Members about the overall situation and the likely financial implications. They will at least have some opportunity to take remedial action to mitigate the effects and to plan for the next year’s overall financial package. They face some very hard decisions and we do not envy them the choices they are likely to be faced with.