Nearly one in 10 councils in England have warned they will go bust in the next 12 months as authorities plan widespread cuts, above-inflation council tax rises and across-the-board increases to resident charges, a survey has revealed.
The Local Government Information Unit (LGIU) annual poll of local authority leaders and top managers reveals a near-total collapse in confidence in the financial viability of councils as they grapple with “desperate” pressures and shrinking budgets.
It warns that council insolvencies – once extremely rare and triggered by unusual special factors such as the failure of commercial investments – should now be regarded as “normal occurrences” likely to hit even well run authorities.
The LGIU chief executive, Jonathan Carr-West, said: “This report, for the first time, demonstrates how widespread councils’ desperate funding situation is. That there is a structural funding issue is now impossible to deny.”
Eight English councils have declared themselves in effect bankrupt since 2018, including four in the past 15 months, including Woking, Nottingham, Birmingham and Thurrock. Several others have planned major cuts in an explicit attempt to stave off insolvency.
Earlier this month, a cross-party group of MPs said an emergency £4bn cash injection was needed to address an “out of control” financial crisis. In January, the government announced £600m in one-off emergency funding – widely regarded as an inadequate “sticking plaster” response by councils.
The survey lays bare what it calls a “dysfunctional” relationship between councils and Whitehall, with the vast majority (94%) of local authority leaders believing ministers have little understanding of the scale of the financial crisis facing councils.
Only 4% of council leaders felt confident about the sustainability of local government finance – down from 14% last year and 20% in 2020. One respondent described running the council as “a permanent state of crisis management”.
Another respondent said: “It feels the worst I’ve ever known it (even than when I started in the early 90s) with no prospect of change. Chief finance officer conferences feel more like group therapy nowadays.”
Survey findings include:
Nine per cent of councils (14 authorities) surveyed reported they were “likely” to declare effective bankruptcy in the next 12 months, with more than half saying they would go bust in the next five years without extra funding.
Rising need and costs in children’s services were the biggest drivers of financial instability in top-tier councils, with soaring homelessness bills the biggest risk factor for district councils.
Nine out of 10 councils plan to raise council tax, with the same proportion proposing to introduce or raise charges for services like garden waste disposal and parking. Nearly two-thirds plan service reductions, “meaning that services are getting more expensive just as they are being cut”.
The survey is based on 160 responses from 128 councils in England (out of a total of 317) reflecting a broad cross-section of councils and geographical spread, and a mixture of political control.
A spokesperson for the Department for Levelling Up, Housing and Communities said: “We recognise councils are facing challenges and that is why we announced an additional £600m support package for councils across England, increasing their overall funding for the upcoming financial year to £64.7bn – a 7.5% increase in cash terms.
“This includes £500m of new funding for councils with responsibility for adult and children’s social care, distributed through the social care grant. Councils are responsible for their own finances and setting council tax levels, but we have been clear they should be mindful of cost-of living pressures while controlling any unnecessary or wasteful expenditures.”
