Nearly one in five English councils at risk of bankruptcy, says LGA

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Nearly one in five council leaders in England have said they are likely to declare de facto bankruptcy this year or next as a result of a lack of government funding, according to the Local Government Association.

A survey by the LGA, the national membership body for local authorities, found almost half of England’s 317 councils believed they would not have enough money in 2024-5 to ensure the delivery of essential services.

More than 60 said they were at risk of having to issue section 114 notices, whereby a local authority signals its inability to fulfil a legal duty to balance the books, next year.  

“While councils have worked hard to reduce costs, find efficiencies and transform services, the easy savings have long since gone,” LGA chair Shaun Davies said.

The LGA has previously warned that councils face an overall funding gap in the next two years of £4bn. It said that because no money had been provided for councils in the chancellor’s Autumn Statement last month, steep cuts would be required.

The body added that councils would be confronted with the tough choice of whether or not to raise taxes in April amid a cost of living crisis.

The survey, released on Wednesday, was timed to coincide with levelling up secretary Michael Gove’s appearance before a cross-party committee of MPs to answer questions on financial distress in local authorities.

The number of councils forced to issue section 114 notices has risen sharply in recent years. As many as nine have issued notices since 2018 — including Birmingham, Woking and Nottingham this year.

In areas where authorities have gone bust, central government has typically overseen a rise in council tax and a further reduction in public services.  

In the Autumn Statement, the government announced plans to relieve pressure on local authorities that provide temporary accommodation to people at risk of homelessness by lifting a cap on housing benefits.

However, nearly two-thirds of council leaders said there was nothing in the chancellor’s statement that would help their financial position.

The Department for Housing, Levelling up and Communities said councils had received a 9.4 per cent increase in funding worth £5.1bn in the last year. The department was ready, it added, to “talk to any council that is concerned about its financial position”.

Some councils have issued section 114 notices partly as a result of their own financial mismanagement, but the LGA underlined that all councils were now under acute strain.

Separately, more than 60 council leaders and chief executives called for a new “covenant between central and local government” to prevent millions of people living in bankrupt boroughs next year.  

In a report by the Local Government Information Unit think-tank, also released on Wednesday, many leaders said they “felt that the level of challenge they were dealing with right now was unlike anything they had seen in their careers to date”.

Essential programmes that determined the quality of life for millions of people each day were at risk, said LGIU chief executive Jonathan Carr-West, adding that “the link between funding and need is completely broken”.

 

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