Download The Credit Crunch - The Potential Impact Upon and Response by

Agenda Item No.
HERTFORDSHIRE COUNTY COUNCIL
POLICY & RESOURCES CABINET PANEL
THURSDAY 12 MARCH 2009 AT 2.00 PM
5(a)
THE CREDIT CRUNCH: THE POTENTIAL IMPACT UPON AND RESPONSE
BY THE COUNTY COUNCIL AND ITS PARTNERS (Corporate Services
Response)
Report of the Finance, Information and Commercial Services Director
Author: -
Chris Sweeney, Finance, Information and Commercial
Services Director
Tel: 01992 555303
Executive Member: David Lloyd
1.
Purpose of the Report
1.1
Over the last year both UK and global economies have significantly
deteriorated and the UK economy has moved into recession. A report
was presented to the Policy and Resources Cabinet Panel on 15 th
January providing some information on the financial risks and
uncertainties demands arising from the economic downturn that will
impact on the 2009/10 and future budgets. It also set out what
Hertfordshire County Council and its partners can do to help local
businesses and people cope with the economic situation. The Panel
referred the report to Service Cabinet Panels for further consideration of
the issues that would directly affect their respective services. This report
covers those issues relating to Corporate Services.
2.
Summary
2.1
The UK economy is currently one which is moving from a relatively high
level of inflation to expected lower levels or even deflation. It is also
experiencing falls in land and property prices, shortage of credit, lower
growth and rising unemployment. The impact of this is affecting all
sectors including local authorities, their residents and businesses.
2.2
Corporate Services have looked at the potential impact of the economic
downturn on the department and identified the issues arising for them.
These are detailed in Appendix 1. The issues relating to the council’s HR
interests are the subject of a separate report.
3.
Recommendations
3.1
The Panel is invited to consider the information contained in this report.
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Appendix 1
HR
See Separate Report (Item 5(b) )
Catering
(i) The impacts of the recession on the service and any mitigating actions
which may be being taken
Trading loss as a result of decline in meal uptake (primary) and turnover
(secondary)
Mitigation:
 Ongoing improvement and promotion of service
 Actively promoting access to Free School Meals (Herts is the
national pilot for the on-line Free School Meal Project)
HBS
Supplies
The impacts of the recession on the service and any mitigating actions which
may be being taken
Downturn in sales particularly from customers outside HCC borders
Some suppliers may cease trading due to the recession
Difficulties of sourcing replacement products
Could affect purchase prices
Ideas of areas where the service could play (or is already playing) a role in
promoting economic well-being during the recession
Where possible catalogue prices are held firm giving customer stability.
We have tried to build in a mark up for any possible price variations.
Hertfordshire Equipment Services (HES)
The impacts of the recession on the service and any mitigating actions which
may be being taken
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HES supply health and social care equipment (free of charge) to the residents
of Hertfordshire, who have successfully undergone a clinical/social
assessment of need.
Where the current financial climate impacts on health and well being, it is
likely to increase stress levels within family units and therefore may increase
the demand for equipment and/or adaptations.
Clients who have previously been in a position to self purchase equipment
may now look to health and social care to provide the equipment free of
charge.
Hertfordshire Reprographics
The impacts of the recession on the service and any mitigating actions which
may be being taken
As yet Reprographics has not seen any adverse affect caused by the current
economic conditions. Reprographics workload tends to be relatively ‘cyclic’
by nature and in earlier periods this could be foretold with a large degree of
accuracy. The previous 2 – 3 financial years have actually shown a variation
in the periodic workload swing and a constant high level of activity has been
prevalent.
It would happen that the high and lows of the print-year cycle may reassert
themselves but that is supposition only.
Hertfordshire Contract Management Services
The impacts of the recession on the service and any mitigating actions which
may be being taken
We have yet to see any downturn with external customer vehicle sales and
internal replacements have not been affected, as there is little that can be
influenced other than replace at the end of a lease.
Again, with the grounds maintenance and cleaning contract areas, we have
seen little impact on business, in fact as fuel prices are now lower, some of
the impact for contractors has been overcome.
Contractors are reporting that recruitment to difficult to fill posts is now much
easier.
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Property
The impacts of the recession on the service and any mitigating actions which
may be being taken
Impacts
 There has been a dramatic effect on capital receipts. These are likely
to fall from £42 million p.a. gross to £15 million p.a. gross or less for
2009/10 and 2010/11.
 Lower capital receipts and increased demand for priority services may
impact on:
o Achieving the 2020 target of 95% property to be fit for purpose.
o Achieving property related carbon dioxide 25% reduction targets
for 2014
o A potential backlog for dealing with maintenance and minor
works
Mitigation
 There is a reduced capital programme for building related works.
These are the highest priorities as identified by the services and
supported by the services property priorities in order to keep properties
operational. In addition a new programme of CO2 mitigation projects
worth £1 million has been agreed for 2009 and beyond.
 Tenders for building works are showing an immediate benefit to the
council as inflation is close to zero on works for projects that are likely
to start and finish in 2009.
Ideas of areas where the service could play (or is already playing) a role in
promoting economic well-being during the recession

A new Hertfordshire initiative called 'Build Hertfordshire' is launched on
the 10th March. This aims to promote to local small and medium sized
companies the prospects of working on public funded property projects,
including facilities management, through the main suppliers to the
councils and other partner in Hertfordshire. It is supported by all of our
contractors and is facilitated by the various national and local training
and development agencies, Business Link and Job Centre Plus. In
addition to increasing the prospects of Hertfordshire based SMEs it is
also sponsoring an approach between companies to retain
apprenticeships and to share work for apprentices if they are under
threat.
Procurement
Existing supplier base - impacts
Currently approximately 47% of our spend is with local suppliers or suppliers
with local addresses (see Delta below).
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We are running an increasing level of financial checks on suppliers (using
Experian and CIPS) and are already seeing suppliers and suppliers of our
suppliers cease trading. Last month we had our milk supplier, Dairy Farmers
of Great Britain, withdraw from our contract. We have also had people like
Nortel who supply the parts to BT for most of our network go into chapter 11
bankruptcy in the States (a form of corporate financial reorganisation in which
a company's assets get sold off to pay creditors, and may allow a company to
continue to function). We also had our security contractor go to the wall. In
running checks against our supplier base using Spike Cavell we had 400 plus
of our current suppliers come up with a risk including 6 in our top 20.
A lot of those companies are highly dependant on HCC as their major
customer.
There is an issue on securing performance bonds, as some suppliers have
had issues with their banks, and demand bonds are seen as overdrafts. Also
we have had at least one supplier bank go bankrupt. There will be a bigger
effect on insurance and similar costs for the small suppliers.
Payment terms
We continue to pay based on 20 working days. We could look at using our
"credit" worthiness to pay quicker to ease cash flow difficulties and indeed
potential take discounts.
ICT
The ongoing credit crunch has taken its toll on IT suppliers. According to a
recent survey (Begbies Traynor), more and more IT companies are starting to
face critical financial constraints as firms cut back technology outgoings.
The ongoing worldwide economy slump is forcing businesses to reduce IT
spending and cancel new projects as well as hardware and software
acquisition.
PFI
The market view is that there is no, or next to no, capital available to finance
any PFI deal that has not already been closed. However, this situation is very
unlikely to sustain, not least because if banks and investment companies
cease to invest they will wither. The current capital market crisis will at some
time begin to recede but it is likely that it will leave a longer-term mark on PFI
and wider PPP policy and programmes in health and other sectors. There are
emerging signs that central government is taking steps to maintain this
national PFI programme.
Delta system and Source Local or source 3
We are introducing the Delta electronic sourcing system. This is in use for a
number of contracts including BSF and HWPP. This system gives us the
opportunity to operate a portal for Hertfordshire and accredit suppliers once
as a county. It could also be used to source Local suppliers for quotations.
We have already spoken with the chamber of commerce and have built links
to their site.
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Communications
Potentially more difficult to secure advertising revenue for Hertfordshire
Horizons
Mitigations:
Seek commitment from existing and recurrent advertisers
Review and promote competitive rate and costs & benefits.
Legal Services
The impacts of the recession on the service and any mitigating actions which
may be being taken
Land charges income reduced
No mitigating actions identified
Finance
The impacts of the recession on the service and any mitigating actions which
may be being taken
Council Tax and Business Rates
Unemployment may impact on council tax collection.
With the decrease in new housing developments there will be a decrease in the
rate of growth of the taxbase.
Lack of business growth impacts on the amount of funding received through the
Local Authority Business Growth Incentive Scheme.
Other
Impact of falling investment rates on investment income and borrowing costs
(HCC is a net depositor).
Uncertainty over future inflation rates.
Impact of the stock market and company performance on the pension fund at
the time of the next actuarial valuation in April 2010 - may increase the cost of
employer’s contributions.
Mitigation
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Allowance has been made in the 2009/10 budget both within the Special
Provision for Uncertainties and the estimation of the minimum prudent level of
reserves for variations in inflation, interest rate and taxbase forecasts.
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