More councils could be at risk of insolvency over the coming months as local authorities in England struggle to fill a £3bn funding black hole caused by inflationary costs and soaring demand for services, town hall leaders have said.
According to the Local Government Association (LGA), several councils are in “an endgame” where, without an increase in funding, they face the prospect of taking increasingly drastic action to meet their legal duty to balance the books.
The cost of providing current levels of council services over the next few months is set to exceed existing available funding by at least £2bn, and by nearly £1bn next year, the LGA said, because of high wage and fuel inflation.
Should inflation stubbornly fail to drop in line with the government’s March budget forecasts, and instead match recent Bank of England inflation projections, it would add an extra £740m to council costs this financial year, and an extra £1.5bn in 2024-25, it said.
Pete Marland, the chair of the LGA’s resources board, said that while recent council insolvencies such as Thurrock, Croydon, Woking and Slough were characterised by governance failures, even well-run councils were “at risk of coming to the end of the road” financially.
After 13 years of cuts, councils were now reaching the point where there was no more room to reduce statutory services, and no financial reserves left to fill budget gaps. “We will start to see more and more councils starting to declare virtual bankruptcy because they can’t cut services any further,” Marland said.
Several councils have only been able to sign off their books for 2022-23 by drawing down one-off, multimillion-pound lump sums running into millions of pounds from reserves. While this keeps them afloat for now, it leaves them vulnerable should they be unable to cut costs in the coming months.
“We are in an endgame where, unless something changes in the medium- to long-term funding settlement, we start to see more and more councils taking more drastic action,” Marland told the FT.
The financial warnings came as the first Labour chair of the LGA for nearly nine years addressed the conference. Shaun Davies, 37, the Leader of Telford and Wrekin council and the youngest ever LGA chair, called for a new local deal for councils – to stabilise town hall services.
He said: “Simplify our funding, cut out wasteful and unnecessary bidding for resources, and give us long-term certainty and stability. With this we can get on with working to improve people’s lives in our villages, towns and cities.”
Davies said councils faced a wave of homelessness from late August after about 8,000 Afghan individuals and families had been served notice to leave the bridging hotels they had been put up in. “We are at crisis point,” he said.
