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One in seven councils has shed jobs in the past few months as a result of the economic crisis.
A survey of council chief executives also found that 22.1 per cent have introduced a recruitment freeze.
The Local Government Association’s survey came as unions representing more than 1m council workers asked for a pay rise “of at least the level of retail price inflation” – currently running at 3 per cent.
Local authorities are under pressure to make efficiency savings of more than £1.5bn ($2.2bn) at a time when council finances are under strain from falling income and rising demand for services.
Nottingham city council warned this week that about 400 jobs could be cut as the local authority seeks to balance its budget for 2009-10. A similar number of jobs is also thought to be at risk at Buckinghamshire county council, according to sector insiders.
Margaret Eaton, chair of the LGA, said: “The credit crunch and the recession are causing a decline in income and an ever greater demand for essential services such as help for the homeless and increased support for local businesses.”
Local authorities risk being capped by Whitehall if they increase council taxes by more than 5 per cent.
Ms Eaton said: “It is a highly unpleasant decision for any council to cut jobs but they also understand that local people are suffering. Councils are working hard to keep council tax down, to keep local businesses afloat and help people deal with the impact of the recession.”
Demand for local authority services such as debt and housing advice has risen because of the credit crunch, while income from developers, land searches and planning applications has fallen sharply.
Unison, the largest public sector union, said it was “madness” to shed staff when demand for services was likely to soar even higher in the coming months. It said pay rises for council workers had lagged behind inflation for years.
Local government employers last year imposed a 2.45 per cent pay rise after council workers sought a 6 per cent increase. Unions agreed reluctantly to refer the dispute last autumn to binding arbitration at Acas, the conciliation and arbitration service. Acas has still to announce its findings.
This year’s pay deal has also still to be agreed. The three local authority unions, Unison, GMB and Unite, on Wednesday submitted a claim for “an increase of at least the level of retail price inflation, with additional salary increases for the lowest paid”.
Heather Wakefield, representing local authority members of Unison, said: “As the worst effects of the credit crunch reach our communities, the first line of defence will be provided by local council staff, but they remain some of the lowest paid workers in the public sector. It is high time that the vital work they do was reflected in a fair pay award.”