KPMG predicts financial rescues for councils unable to cope with CSR

Central government is likely at some stage of this Parliament to have to effect financial rescues of a small number of councils unable to cope with the demands of the Comprehensive Spending Review, a leading commentator has claimed.

Iain Hasdell, partner and UK head of local and regional government at KPMG, said: “I am expecting this challenge to be beyond some councils, which will run out of cash at some point in the next four years, in much the same way as parts of the public sector health economy did in the middle of the last decade."

Hasdell said the CSR announcement confirmed that the future for local government is “one of dramatic challenge that will severely test the financial viability of some councils”.

The KPMG partner warned that, in order to survive, councils would need to be ruthless in urgently deciding on front line service priorities and ending the delivery of lower priority services.

“They will have to reduce the sizes of their back offices, in a radical overhaul of organisational structures and will be forced to cull large parts of their capital investment programmes,” he insisted. “Perhaps above all councils will need to hugely increase their productivity – reversing the decline in local government productivity of the last decade.”

Hasdell welcomed the commitment to devolution of services and the removal of most ring-fencing.

But he warned that cuts to local government would inevitably have “equally profound” implications for the private and third sectors.

“As local government gets smaller and poorer in cash terms, those organisations in its supply chain will experience many difficulties finding alternative contracts,” Hasdell argued. “Several financial collapses of companies and organisations within this local government supply chain will result over the near term."