The financial crisis engulfing English local authorities will trigger an unprecedented increase in town hall bankruptcies in the coming months, local government leaders have warned, as they prepare to increase council tax bills and impose a fresh round of cuts to services.
The grim forecast, endorsed by council leaders of all political colours, comes days after Labour-run Nottingham city council issued a Section 114 notice to become the fourth authority in the past 12 months – and the eighth in six years – to declare effective insolvency.
Nearly one in five council bosses believe it is “fairly or very likely” that they will go bust in the next 15 months as funding fails to keep pace with inflationary costs and exploding demand for child protection, adult social care and homelessness services, according to a Local Government Association (LGA) survey.
“No council is immune to the risk of running into financial difficulty. As our worrying survey shows, many now face the prospect of being unable to meet their legal duty to set a balanced budget and having Section 114 reports issued,” said LGA chair Shaun Davies.
Many councils are now drawing up plans for immediate further cuts in response to last month’s autumn statement, which offered no financial respite for town halls despite growing concerns over local authorities’ estimated £4bn funding deficit over the next two years.
On Tuesday Leeds city council announced it will cut 750 jobs, close care homes and the Pudsey Civic Hall concert venue, and raise parking charges and social care fees in an attempt to save £58m.
“We know some of the proposals we have set out today will be unpopular as they will have a challenging impact on people’s lives,” said council leader James Lewis.
Separately, the leaders of several “blue wall” Conservative-controlled shire councils such as Essex, Hampshire, Kent and Surrey, as well as the backbench Tory MP and Nottinghamshire county council leader Ben Bradley, have put their names to a letter to levelling up secretary Michael Gove pleading for extra funding.
The County Councils Network letter, signed by more than 30 authorities, calls for an emergency bailout of children’s social care and home-to-school transport services this winter to head off “severe and mounting pressures” that could see seven in 10 of its members at risk of insolvency in 2024-25.
It says failure to provide extra funding would see England’s largest councils push through yet more painful cuts to frontline services while raising council tax to the maximum allowed.
“This is a situation we would all want to avoid in a general election year,” the letter says.
Local Government Information Unit thinktank chief executive Jonathan Carr-West said 12 councils could go bust in 2024-25: “Councils are pulling every lever available to stay afloat: raising council tax, raising charges, cutting services, increasing commercial investments, spending finite reserves and selling assets but it is simply not enough,” he said.
Gove is due to be grilled on Wednesday by a cross-party MPs’ committee concerned about whether ministers have a sufficiently robust grip on the growing cost pressures bearing down on councils amid fears the ongoing financial crisis poses an “existential threat” to local authorities, many weakened by years of austerity cuts.
The Levelling Up, Housing and Communities select committee inquiry into local authority financial distress has heard evidence in recent weeks from council leaders suggesting that on current trends about half of England’s 318 councils could be in serious trouble next year.
The Tory Leader of South Norfolk district council, John Fuller, told MPs last month the funding problem faced by councils was structural: “When you have social care [costs] going up by 19% and children with complex needs going up by 23%, but your income is only going up by 3% to 5%, it does not take a maths genius to work out that there is going to be a gap at some stage.”
A Department for Levelling Up spokesperson said: “We have made an extra £5.1bn of funding available to local authorities in the last financial year worth an additional 9.4% in cash terms to budgets.
“Councils are ultimately responsible for the management of their own finances, but we stand ready to talk to any council that is concerned about its financial position.”
