Councils in England warn of growing financial crisis

More councils in England are at risk of going bust after the government set out its tax and spending plans last month, local government leaders have warned.

Local authorities say a lack of funding in the Autumn Statement has left many facing effective bankruptcy.

Leaders of some of the largest councils – including 26 Conservatives – have written to the government warning of “painful” cuts to front-line services.

The government says it is open to talks with councils with financial issues.

Two of the bodies that represent councils in England, the Local Government Association (LGA) and the County Councils Network (CCN), carried out snap surveys of their members following last month’s Autumn Statement.

The “worrying” findings paint a picture of a “growing financial crisis”, according to the LGA, which said almost one in five of its members were at risk of running out of funds either this year or next.

Last week Nottingham City Council became the latest local authority to issue a Section 114 notice, which means halting spending on anything that is not required by law.

The authority has faced questions over some spending and investment decisions, but local government leaders are warning other councils could soon follow suit.

Shaun Davies, the chairman of the LGA, said: “The lack of funding for local services in the Autumn Statement has left councils facing a growing financial crisis.

“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.

“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 acute financial challenges faced by councils.”

Councils have been warning about a precarious financial picture for some time.

After a period of austerity which saw budgets cut, the government has increased the funding available to councils, including for this year and next.

But a combination of inflation and growing demand for services, particularly support for vulnerable adults and children and housing services, has left many councils facing budget shortfalls.

The government did increase local housing allowance in the Autumn Statement – a move that was welcomed – but there was no additional funding for councils, which will also have to fund increases in the National Living Wage.

The CCN said that would cost its members around £230m next year.

Barry Lewis, finance spokesperson for the CCN, said: “The results of our new survey show that our councils’ financial position is significantly worse than before the Autumn Statement.

“The majority of the County Councils Network’s member councils will now have no choice but to increase their planned level of service reductions, reduce investment on growth-creating capital projects, and levy higher council tax rises: all of which impact our residents.

“For some, even this drastic action will not be enough, with seven in 10 now no longer confident they can balance their budget next year.”

Thirty-three of the organisation’s council leaders, including 26 Conservatives, have written to the Levelling Up Secretary, Michael Gove, calling for additional funding.

The letter warns that without this, councils “would face the prospect of outlining painful reductions to front-line services” and raising council tax to the maximum rate allowed.

The government is due to set out funding for local councils for the coming year later this month.

Mr Gove is also giving evidence to the Commons Levelling Up Committee on the financial situation of councils later.

In a written statement on Tuesday, Mr Gove said the total finance settlement for next year of £64bn 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”.

“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,” a Department for Levelling Up, Housing and Communities spokesperson said.

“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.”