Local government officials have issued a warning that a financial crisis affecting English local authorities will result in a record number of town hall bankruptcies in the near future. They are bracing for the need to raise council tax rates and make additional cuts to services.
The ominous prediction, supported by council leaders from various political parties, follows the recent announcement from Nottingham city council, governed by the Labour party, that they have declared a Section 114 notice, making them the fourth authority in the last year and the eighth in six years to declare financial insolvency.
According to a survey by the Local Government Association (LGA), almost 20% of council leaders think it is possible that their organization will go bankrupt within the next 15 months due to inadequate funding to cover increasing costs and growing demand for child protection, adult social care, and homelessness services.
According to chairman Shaun Davies of the Local Government Association (LGA), no council is exempt from the possibility of encountering financial challenges. As our concerning study reveals, numerous councils are currently at risk of not being able to fulfill their legal obligation of creating a budget that is in balance, and may be issued Section 114 reports as a result.
Several local governments are currently creating strategies to make more budget cuts in light of the recent autumn statement, which provided no relief for town councils despite worries about a projected £4 billion funding shortfall over the next 24 months.
Leeds city council has declared its plans to reduce 750 positions, shut down care facilities and the Pudsey Civic Hall concert venue, and increase parking fees and social care costs in order to save £58 million.
Council leader James Lewis acknowledged that some of the proposals presented today may not be well-received due to their potential difficulties for individuals.
Individually, the heads of multiple Conservative-controlled county councils in the “blue wall” region including Essex, Hampshire, Kent, and Surrey, along with backbench Member of Parliament and leader of Nottinghamshire county council Ben Bradley, have signed a letter to the secretary responsible for levelling up, Michael Gove, requesting additional funding.
The letter from the County Councils Network, which was signed by over 30 agencies, urges for an urgent rescue plan for children’s social care and transportation services to avoid escalating pressures. These pressures could potentially put 70% of its members at risk of going bankrupt by 2024-25.
The text suggests that if additional funding is not provided, the biggest councils in England will implement further reductions in essential services and increase council tax to the highest limit.
“The letter states that this is a scenario that all of us would prefer to avoid during a presidential election year.”
According to Jonathan Carr-West, the chief executive of the thinktank Local Government Information Unit, 12 councils may face financial failure in the fiscal year 2024-25. He stated that these councils are utilizing all possible measures to remain financially stable, including increasing taxes and fees, reducing services, investing in commercial ventures, depleting limited reserves, and liquidating assets. However, these efforts are insufficient.
On Wednesday, Gove will face questions from a group of MPs from various political parties. They are worried about the government’s ability to effectively handle the increasing financial pressures faced by local councils. There are concerns that the ongoing financial crisis could potentially harm local authorities, which have already been weakened by years of budget cuts.
The inquiry conducted by the Levelling Up, Housing and Communities select committee regarding the financial distress of local authorities has received testimony from council leaders, who have indicated that approximately half of England’s 318 councils may face significant difficulties in the coming year based on current patterns.
Last month, John Fuller, the Tory Leader of South Norfolk district council, informed MPs that the funding issue for councils is a structural one. He pointed out that while social care costs are increasing by 19% and the number of children with complex needs is rising by 23%, the income is only increasing by 3% to 5%. This simple calculation shows that there will likely be a gap in funding at some point.
A representative from the Department for Levelling Up stated that they have allocated an additional £5.1 billion in funding to local authorities in the previous fiscal year, representing a 9.4% increase in cash terms to budgets.
Local authorities have the ultimate responsibility for overseeing their own financial management. However, we are available to engage in discussions with any council that has concerns about their financial standing.
Source: theguardian.com
