Credit crunch takes a bite out of council earnings

As the week of Blue Monday (19 January) gets underway, Merton Council announced this week how the national economic downturn has resulted in a drop in earnings since April 2008.

With the recession leading to greater demands on council services the council’s latest financial report shows a relatively small – when compared with the overall budget – but significant potential overspend of £336,000 for 2008-2009.

Looking at areas particularly affected by the credit crunch, there has been a significant fall in the number of planning and building control applications submitted compared with last year. This has led to a fall in income received by these departments. Reduction in large scale development proposals will also contribute to a fall in additional funding levied by the council as part of a planning application for private sector projects (Section 106) often used to finance environmental initiatives.

Also affected is the income generated from parking fees. Merton Council is projecting a £300,000 shortfall in parking fees for November due to fewer residents driving into town centres and paying to park their car.

Along with councils up and down the country Merton is predicting increased pressure to provide places at its schools as people who would normally have sent their children to private schools are now choosing state education. Also, due to the slow housing market young families are not moving out of the borough to more rural areas at the same rate as has previously occurred. Growing unemployment may mean more housing repossessions which could lead to a greater need for social housing and demand for housing and council tax benefit. Expecting increased rent and council tax arrears along with the administrative and legal costs that go with this, the council is urging residents to keep in touch about financial difficulties they may be facing. This will help the council to come up with the best solution to support people dealing with difficult financial decisions.

Merton Council’s history of nurturing small businesses through initiatives such as Mitcham Means Business and more recently through launching its Business Generator Centre will serve to maintain a strong entrepreneurial talent in the borough. With such initiatives the council is pushing to diversify the businesses that make up Merton’s economic base and continue to support existing and emerging enterprises while ensuring the local workforce benefits from any changes.

Deputy Leader of Merton Council Councillor Samantha George said: “As the credit crunch bites, the demand for benefits and possibly social housing is set to increase putting further pressure on the council’s finances. Always keen to listen to our residents and businesses, we urge them to keep in contact with us so we know about their concerns and can re-evaluate with them how they navigate their way through this financially challenging time.

“We are concentrating our efforts at this stage on coming up with initiatives and policies to help minimise the impact of the credit crunch on the businesses that form Merton’s economic backbone. To this end we have already contacted businesses in the borough to make sure they know that they are eligible to receive business rate relief.

“To enhance the economy further, we are actively looking at every opportunity to maximise Merton’s status as the only south London Olympic borough. The Wimbledon Tennis Championships and the 2012 Games will give Merton added value as a tourist destination so reinvigorating our economy.

“From the point of view of our own housekeeping and because we are a major player in the life of the economy, we have put in place special quick payment arrangements to ensure we pay local businesses for their services and products within 21 days.”


Notes to editors
1. According to the Audit Commission over 80% of authorities reported falls in development activity in 2008/09. This affects a number of income streams for local councils such as income from planning fees, building control and Section 106 agreements.
2. Around 52% of local authorities had measured a reduction of at least 3% in income from car parking fees
3. Over 90% of all authorities responding to the Audit Commission questions are forecasting higher numbers of benefit claimants in 2009/10.
4. According to the Audit Commission unemployment will increase the demand for benefits and financial advice. Over 90% of the authorities who took part in the Audit Commission survey said that they expected higher numbers of benefit claimants in 2009/10 with some already experiencing an increase.
5. Almost three quarters of councils are anticipating increases in council tax and rent arrears as the recession and rising unemployment affects household incomes.