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.