Town halls in cash crisis: One in five council bosses fear they will follow Nottingham and Birmingham councils next year and declare themselves bankrupt

2 months ago
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Nearly one in five council bosses fear that the local authorities they run will declare themselves bankrupt next year, following Nottingham and Birmingham.

Councils warned that the risk of financial failure has increased due to lack of Government support in the autumn statement, while others said they may not be able to fulfil their legal duties.

With Levelling Up Secretary Michael Gove due to give evidence to MPs on council finances on Wednesday, two surveys of senior local government figures suggest the sector is on the brink of escalating operational distress.

Councils across England will face a collective blackhole of around £4billion over the next two years just to maintain current service levels as demand rises, the Local Government Association (LGA) has estimated. 

This comes after Labour-run Nottingham and Birmingham City councils declared themselves effectively bankrupt this year, after finding gaping black holes in their budgets.

Nottingham was forced to issue a section 114 notice last week as it declared it was unable to balance its 2023/2024 budget, and was on course for a £23 million overspend, becoming the seventh authority to do so since 2018.

Nearly one in five councils bosses fear that their local authorities will follow declare themselves bankrupt next year, following Nottingham (Nottingham Council HQ Loxley House pictured) and Birmingham

This comes after Labour-run Nottingham and Birmingham City (head p office pictured) councils declared themselves effectively bankrupt this year, after finding gaping black holes in their budgets

A survey by the Labour-led LGA found one in five council leaders and chief executives believe it is very or fairly likely that their chief finance officer will need to issue a section 114 notice this year or next, in an admission that the annual budget cannot be balanced as required by law.

Half of respondents said they are not confident they will have enough funding to meet their legal duties after no further money was provided by the Chancellor.

This includes statutory services such as social care and support for the homeless.

Meanwhile, a survey by the Conservative-led County Councils Network (CCN), which represents 23 counties and 13 unitary authorities serving 47% of the population, showed nine in 10 of its member councils said the autumn statement left them in a 'significantly worse' position.

The survey found 70% of CCN councils are now unsure they can balance their books next year, compared with 40% in a survey conducted before the Chancellor's statement last month.

The increased pressure is largely due to the increase in the national living wage, which will cost CCN councils an estimated £6.3 million a year.

The CCN said 80% of councils are now planning further 'painful' reductions in services and 90% suggested they will introduce maximum council tax rises of 4.99% next year.

A letter to Mr Gove signed by the leaders of CCN councils called for further financial support in the forthcoming local government finance settlement for 2024/25.

It said: 'Local government is a vital part of the fabric of this country but every reduction in service erodes the role councils play in society and makes it harder to provide the important services businesses and communities rely on: from protecting the most vulnerable, regenerating their areas, to even the simple things such as keeping our streets clean.'

The letter added that cuts to services and council tax rises were 'a situation we would all want to avoid in a general election year'.

Mr Gove said the total finance settlement for next year of £64 billion would provide an above-inflation increase in funding for local government

A total of nine councils have issued at least one section 114 notice since 2018.

Nottingham City Council was the most recent of three councils that took the step this year.

It followed Northampton, Croydon, Thurrock, Woking, Slough and most recently Birmingham City Council, Europe's largest local authority, who issued its 114 notice in September.

Councils in 'financial peril' include Brighton and Hove City Council, which last week warned it will have to cut millions of pounds in spending next year to make up a huge £31million budget black hole.

And Somerset Council also faces a shortfall of up to £100m, which leaves it at risk of going effectively bankrupt.

The council is now looking at their options raise money, which include selling properties, increasing council tax further and reducing services.

Labour LGA chair Shaun Davies, who is leader of Telford & Wrekin Council, said no council is 'immune to the risk of running into financial difficulty'.

He added 'Local government is the fabric of our country, with councils providing hundreds of services that our communities rely on every single day. For many people, these services are a lifeline.

'If councils cannot thrive then our communities cannot thrive. If social care services that councils provide cannot cope with demand, then pressure on the NHS will grow further. If council housing teams can't succeed, then all of our hopes for new homes will not succeed.

'While councils have worked hard to reduce costs, find efficiencies and transform services, the easy savings have long since gone. The Government urgently needs to act to address the acute financial challenges faced by councils.'

In a written statement on Tuesday, Mr Gove said the total finance settlement for next year of £64 billion would provide an above-inflation increase in funding for local government, with the average council seeing a real-term increase in their core spending power.

He also asked councils to 'consider how they can use their reserves to maintain services over this and the next financial year'.

Mr Gove added: 'The Exceptional Financial Support framework is available to provide support where a council has a specific and evidenced concern about its ability to set or maintain a balanced budget, including where there has been local financial failure.

'Where councils need additional support from government, they should take every possible step to minimise the need for that support to be funded by national taxpayers, while also recognising the cost-of-living pressures on families.'

A Department for Levelling Up, Housing and Communities spokesperson said: 'We have made an extra £5.1 billion 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.'

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