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20 October, 2010 - 16:37 By Staff Reporter

Councils face collapse, KPMG warns


Some local authorities could be bankrupt within four years in a ruthless new regime engendered by the Government’s Comprehensive Spending Review, a KPMG specialist has warned.

So could a number of companies in the local government supply chain, they caution.A huge increase in productivity was being demanded of the local government  sector in the CSR. But Steph Beavis, Public Sector Director at KPMG in Cambridge, fears the task could prove beyond many councils and she predicts financial collapse.KPMG is sponsoring Business Weekly’s pre-and-post CSR coverage and Steph said: “The CSR announcement confirms that the future for local government is one of dramatic challenge that will severely test the financial viability of some councils. But further commitment to devolution is a real positive.“The Chancellor's statement projects year on year cuts in the cash given to local government by central government totalling around 30 per cent over the next four years.“In order to survive, councils will 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.“Perhaps above all councils will need to hugely increase their productivity - reversing the decline in local government productivity of the last decade.“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. “Central government is likely to have to effect financial rescues of a small number of local councils later in this Parliament.“The very strong commitment to the devolution of services from Whitehall to localities is pleasing, as is the further removal of the ring fencing of Government funding. “This will allow councils to grasp more control of how they spend their budgets. There was also a welcome increase of £2bn in funding for local adult social care services and confirmation of the Tax Increment Financing scheme for funding infrastructure projects.“The CSR heralds really difficult times ahead for local government, a key part of the economy, accounting for around 25 per cent of all public expenditure in the UK, employing more than 2.5m people and spending around £200bn each year.“It’s therefore inevitable that the implications for the private and third sectors may be equally profound. As local government gets smaller and poorer in cash terms, those organisations in its supply chain will experience many difficulties finding alternative contracts. “Several financial collapses of companies and organisations within this local government supply chain will result over the near term.”

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