Black Hole in Edinburgh City Budget Driven by recession, trams and SNP Policy

A black hole is opening up in the Edinburgh city budget that could eventually lead to the city going bankrupt. A combination of the recession, the Trams project and the SNP’s policy of freezing the council tax is opening a deficit that is being filled with job cuts, wage cuts and cuts in services. This is unlikely to be enough to fill the growing gaping hole in the city’s finances.

The current (2009/2010) revenue budget of £1042 million (m) is made up of £225m collected from council tax and £816m form central government. The central government amount will be cut back in real terms in 2010/2011 and even maybe in absolute terms. This is because the government itself has a massive deficit from baling out the banks. So Far they have spent £350 billion (b) on direct and indirect (quantitative easing) bailouts. They are liable for another possible £700b from their insurance of the banks’ toxic assets. They have to reduce this deficit by issuing more debt and cutting public services, jobs and wages. It is unlikely given the depth of the recession and long-term plateaus of much lower economic activity that they can repay the debt from increased tax revenues. Therefore, they will be forced to make additional prolonged cuts in services to repay this debt.

At the same time the recession is biting hard in Edinburgh. Unemployment has increased by nearly 7,000 – 5,000 jobs in finance – over the last eight months in Edinburgh. This more than two times the rate of jobs losses in the rest of Scotland. The total for 2009 is likely to reach at least 10,000. This would mean an approximate short-fall in council tax of £10m. On top this is an increase housing benefit and mortgage payments which will be met by a combination of City and government finances. This would come to another £50m. There is also a reduction in business rates as businesses go bust. The total shortfall is in the region of £65m or 6.5% of the total budget.

The second hole in City’s budget is from the collapse in the City’s land sales. The recession was in the end a bubble in residential and commercial property. This has bust with a sharp contraction of bank credit after the banks losses to the property market, individual and corporate loans and derivatives’ trading. The City had previously kept council tax rises down by the sale of this property. This has now disappeared. For example, the Meadowbank stadium was valued at £18m prior to recession now the price on offer is £6m with no offers. Property companies are themselves in financial trouble or are unwilling to start new developments with the fall in property prices and the tightening of credit and increasing levels of unemployment. This lies at the root of the crisis in the Trams project.

The Trams project was essentially a carrot to developers to redevelop the Leith docks area with residential and commercial property. The plan was that the quick air-conditioned tram system could whisk the new well heeled residents of Leith Docks to the city centre and their highly paid jobs and exclusive shops without spending too much time in the company of the indigenous residents. It is in effect the ultimate bubble project. But given the recession these property developments are not going ahead. The City had hoped to raise money from these companies and the sale of City land to fund up to about £55m of the cost of the tram project. With costs spiralling up this needs to be about £90m. The Scottish government will not come in with any further money as they themselves face severe cuts from Westminster as central government grapples with paying for the huge deficit that has been run up in bailing out the banks.

This means that the City council face either blindly going ahead with the project until the money runs out. Or make massive cuts to pay for the shortfall and/or raise the council tax. They would need to make a 30% increase in council tax to pay for the shortfall in the Trams budget and the reduced council tax revenues from the effects of the recession. This is what the City of Edinburgh’s “modernisation” of pay is all about? It is a way of cutting costs and absolute wages through the back door. Instead if the SNP had not made their promise of freezing council tax and if they had an introduced a progressive local tax then this problem would have been much smaller.

All of this is likely to lead to huge conflicts between City of Edinburgh council and its employees and the public who use its services and the contractors building the Trams. In the end somebody will have to be pay for the hole. The building contractors will use the courts to recover any outstanding monies from a finished or unfinished Trams project.

The City’s employees and the public who use their services will have to unite together to stop big businesses and the inept councillors from walking away from this mess scot free otherwise the effects of this recession will be even more harshly felt by the people of Edinburgh. That is why we must all unite behind the bin men as they are first in the firing line of the City council’s offensive against the people of Edinburgh.
 

http://www.leftbanker.net/

Comments

Re: Black Hole in Edinburgh City Budget Driven by recession, tra

By Anonymous

Good article.  My two cents (pence or whatever) --> Edinburgh, besides being bankrupted is a shithole anyway.  There is nothing to do in this city, it costs a fortune to live here, it is bland and boring, and the pride of it is Prince's street... wow!  Don't let me get to damned excited.  Oh yeah, the jobs in Edinburgh are crap as well.  Let's see, you can work as a shop clerk or a shop clerk for minimum wage.  Well, unfortunately none of the landlords in Edinburgh offer minimum wage rents and the Council doesn't offer minimum wage rates either.  Apparently there is some kind of weird dilusional drug in the water in Edinburgh.  Of all the places I've ever lived in Scotland... Edinburgh is the worse.  Expensive, boring, and nothing to do unless you want to shop shop shop shop for rubbish rubbish rubbish.  Seriously, the morons who run this city need to get their heads right out of each other asses because this place is a craphole.

Re: Black Hole in Edinburgh City Budget Driven by recession, tra

By Anonymous

A good and interesting article but a correction is needed.

The SNP tried to bring in a local income tax but were prevented by the Labour, Tory & LibDem parties and so were stuck with the current system. They also inherited the Trams project from the previous Labour administration and could not cancel it for legal contract reasons without spending another huge sum for, in effect, nothing at all. Finally, the recession and bank collapses were largely due to poor supervision and encouragement from both US & UK governments to lend, lend, lend so that people felt happy and kept voting them back in. In Britain's case, the current Labour Party Prime Minister was the very Chancellor who did all this and relaxed the oversight of the banks.

It would seem that the only part of this 'blame' that can be laid at the door of the SNP was to ask the councils to freeze the council tax (long before the recession hit) in order to help the poor and the working classes of Scotland. Not really a major 'mistake' nor terrible act by them, I'm sure you will agree.

I appreciate that the budget issue is serious and not party-specific but it just seemed that you mentioned the SNP a number of times without actually mentioning the real culprits of some of the avoidable mistakes.

Perhaps the more correct title to the piece would be "Black hole in Edinburgh City Budget driven by recession, trams and the legacy of Labour rule".

Peter.

Re: Black Hole in Edinburgh City Budget Driven by recession, tra

By Anonymous

I agree with the second comment, the article suffers for this.