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By Councillor Malcolm Hanney, B&NES council cabinet member for resources

My first job as a banker with Barclays in 1974 was getting a loan to Slater Walker repaid before Slater Walker failed. I didn't realise I was in the middle of the secondary bank crisis - I was far too busy enjoying my life.

In 1982/3, I was with HSBC in Hong Kong when the property and stock markets collapsed on fears that talks with China on the future of Hong Kong would not have a positive outcome.

I was in Chicago in 1987, as a partner in the world's largest options trading firm - CRT, when the global markets crashed and fear ruled the financial world.
We had liquidity and we survived - at the time though, I did rather feel that crises were following my every career move!

Although there have been some rather less pronounced "market difficulties" since then, there really has been nothing of the scale and impact that we are seeing today and with such risks to the underlying economy.

It is all pretty scary stuff. What is astonishing is that it is now over a year since there was a run on Northern Rock and yet you get the sense that the Government, the Bank of England, the Treasury, the Financial Services Authority and the bankers themselves have even less grip than they had then, that they are acting like rabbits in headlights, and that any technical analysis would conclude "heaven help us"! This is different from the "good old days".

What will all this mean for the residents of Bath and North East Somerset? At one level it is far too early to say, but unless market confidence returns, albeit hopefully a little more subdued than it has been, the implications for the wider economy will be pretty awful.

The Government now has to make massive financial commitments (bets) in respect of the financial markets; revenues from the financial sector which have fuelled a large element of increased public sector spending will be severely curtailed; government borrowing will increase markedly and at some stage will have to be paid for by increased taxes or cuts in public spending; the uncertainty and lack of credit availability will affect not just financial businesses and employees but all businesses and employees in the wider economy from construction to the High Street; the level of credit card debt will be the next big problem; and there will be massive implications for pensions in both the public and private sector.

The council can't sit around and wait for others to solve the national and global crisis – it has to plan and manage against this background. Most importantly it has to help ensure that Bath and North East Somerset suffers less than most in the inevitable recession and is well prepared as eventually we move into the next upturn.

The Government will try to keep spending in public services, particularly the NHS, on current trajectories at least through the next election period even if this means substantial increases in borrowing.

However, in my view, the next Comprehensive Spending Review within Government will see, at best, no real growth in NHS spending and significant pressures/cuts in other areas of government spending, including for local authorities.

The council currently has a healthy financial position because it has balanced current expenditure and current income over many years. It has a reserves position appropriate for the scale of risks that it has across its activities.

We have also sought to be cautious in terms of the placement of council funds, foregoing interest at times rather than taking unacceptable risks.
We will need to be even more vigilant in our own spending plans and prioritise ruthlessly. There will be no easy get-out either to borrow more or to use reserves.

We will have to look at every area of expenditure as part of our current medium-term planning. Some areas will see a slowdown and this may impact on the pace at which we need to replace departing staff. We will have to live within our means, or rather the means of our residents.

I have one major worry and one real hope.

The council's current employer pension contribution is around 18 per cent of salary - we have been prudent in increasing the employer contribution in accordance with actuarial advice and have had a good level of asset cover relative to other authorities in terms of future obligations.

However, at current market levels the employer contributions will need to be increased significantly - at this stage I am guessing but possibly to around 30 per cent. Each one per cent increase in employer contribution is equivalent to about one per cent on council tax.

We will be able to phase in but the pension contributions are a real liability and will have to be funded and not ignored. We will be trying to keep council tax increases low, recognising it is going to be hard for our residents but pension costs are going to be a big pressure.

The public sector has got a big problem because final salary schemes are going to cost a lot more than currently budgeted nationally and the public may not be that enthused about paying for them when their own pension pot is being decimated by the financial turmoil.

At a minimum they will expect the public sector to be tight on spending and this will include a degree of pay restraint at national levels as pension entitlements and bills are highlighted.

On the more positive side, we know there is a problem and we will be doing something about it.

We will hopefully have the grip I fear is lacking nationally. It will be hard work and we will need the help of all our staff. Our challenge is to implement the vision for Bath and North East Somerset and hold our nerve on investment for the future so we are well prepared when the recession ends. We need everybody to work together, get real about what we can and can't fund, and avoid complacency.


Picture of the day

Picture of the Day

Chris Harris, starring in Jack and the Beanstalk at the Theatre Royal, Bath, with two young supporters of Dorothy House's Dotty Day. Picture: Kevin Bates

 



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