Britain has seen itself go from economic powerhouse to virtual bankruptcy during 2008. The pound is barely worth a euro and by all accounts there is much worse to come during 2009.
Despite all the government’s brave words about the country’s flexible economy and sound finances, the Treasury doesn’t really know what will happen next.
Councils have largely been left unmolested during 2008. Whitehall has run out of initiatives, beyond ramping up efficiency targets. As the banking system and economy have collapsed, the government has found itself pursuing two largely contradictory policies in parallel.
First, there has been much discussion of Keynesian investment, coupled with efforts to keep people spending. Second, local government has been squeezed as normal, including the threat of capping.
As long as ministers hold average council tax increases to 3-4% per year, it is most unlikely councils will feel free to invest very much. Squirrel-like hoarding of reserves is more likely.
It is almost impossible to see into the economic or political future at present. The government still talks optimistically about a resumption of growth late in 2009 or early 2010.
However, most independent forecasters are far more pessimistic. Whatever happens, local government budgets will be squeezed for six or seven years into the future as part of a wider effort to reduce public borrowing.
Oddly, the economic tempest now engulfing Britain probably means local government will be spared radical reform or reorganisation in the next few years. Whitehall has lost its enthusiasm for change. ‘Modernisation’ looks like a luxury.
In the medium term, the electorate is going to look at the mess the economy is in and judge national politicians harshly. Over-centralised Britain, with its one-size-fits-all approach to economic management has discovered that when things go wrong, they go wrong universally.
The long Christmas break will offer a time for introspection about the state of the country. A million people may lose their jobs during 2009. Inflation may dip below zero. Pay cuts will be forced on private sector employees. Cuts in existing public spending plans cannot be ruled out.
There will be a political pay-off for all this, and it will not be nice. Fear will give way to a search for the guilty.
Eventually, things will return to normal, but it may take far longer than during the recessions of the early 1980s and early 1990s. It would be wrong to end the year on an optimistic note.
Things will get much worse before they get better and by that time there may have been major political and social changes in Britain. Councils must tread carefully in this difficult and dangerous place. Constructive pessimism should guide all decisions.
As you throw another log on the fire over Christmas, remember the weather will get worse in January.