A record 19 councils in England have been handed multimillion-pound government bailout agreements totalling £2.5bn to prevent them collapsing into bankruptcy in the next few months, in a move likely to trigger a new round of public asset sales.
The Department for Levelling Up, Housing and Communities has agreed that the councils can take the highly unusual step of using funds raised by loans, or the sale of assets such as land and buildings, to plug holes in day-to-day revenue accounts.
The move, which follows an emergency £600m cash injection for all councils in January, is seen as a way of ministers minimising the prospect of further town hall insolvencies before the general election, rather than a solution to the wider crisis.
Rob Whiteman, chief executive of Cipfa, the public sector accountancy body, said: “It’s a huge relief to see 19 councils not going immediately bust. But it’s a very temporary solution that stands normal accountancy practice on its head to get us to the other side of a general election. But that’s all it does.”
The announcement comes after the latest dire predictions about English council finances. A survey report issued by the Local Government Information Unit on Wednesday estimated that 14 of England’s 372 councils would go bust in the next 12 months, as they collectively struggle with an estimated £4bn shortfall.
The agreements, known as capitalisation directions, are not grants or bailouts in the conventional sense of a cash injection but an arrangement that allows councils to bypass normal accounting rules to convert capital sums obtained by loans or selling assets into revenue.
Jonathan Carr-West, chief executive of the Local Government Information Unit, said the move was welcome but “we should not mistake this for generosity on the part of the government. They are simply allowing councils to borrow, and to sell their own assets.”
Birmingham council has already signalled that it intends to sell off up to £500m of as yet unidentified land, businesses and buildings from its £2.4bn asset portfolio, which includes the city’s central library, museum and art gallery, Aston Hall and the council’s stake in Birmingham airport.
Experts said capitalisation support is normally frowned upon as risky and short term, will not prevent cuts in council services, and is regarded as poor accounting practice. One told the Guardian: “It’s like you saying: ‘I’m selling my house to pay off my credit card bill.’ I’d say: ‘Are you sure you really want to do that?’”
Councils given exceptional financial support include Birmingham, Nottingham, Thurrock, Croydon, Slough, and Woking, all of which are in special measures after issuing formal section 114 declarations of bankruptcy in recent years.
Other councils in the list include Havering in east London, which had said that failure to get financial support would trigger immediate bankruptcy; and Somerset, which declared a “state of financial emergency” in autumn.
Strikingly, both North Northamptonshire and West Northamptonshire councils, created as supposedly more sustainable successors to Northamptonshire county council, which went bust in 2018, have been allowed to capitalise £10m between them to stave off effective bankruptcy.
The other councils are: Bradford, Cheshire East, Cumberland, Eastbourne, Medway, Middlesbrough, Plymouth, Southampton, and Stoke-on-Trent. It is unclear if any councils had been refused financial support by ministers.
Sir Stephen Houghton, chair of the Special Interest Group of Municipal Authorities, said: “This exceptional financial support will be welcome as a stopgap for those councils that have applied, but will not provide a long-term solution.”
A Department for Levelling Up, Housing and Communities spokesperson said: “This is about having a pragmatic approach and agreeing financial flexibilities with a small number of councils - as we have done in previous years – to help them balance their budgets and deliver vital services.
“Nearly three quarters of the support announced this year relates to six councils where there has been severe local failure, forcing the government to step in and take action through statutory intervention.
“Councils are ultimately responsible for their finances and will see their overall funding for the upcoming financial year increase to £64.7 billion – a 7.5% increase in cash terms.”
