14 UK Councils Facing Looming Bankruptcy Threat
Around 30% of councils in some of the UK's poorest regions are considering declaring effective bankruptcy in the next year, according to a survey of 47 local authorities. This financial strain has led five councils to ponder issuing a section 114 notice, indicating their inability to balance budgets for 2023-24. An additional nine councils, part of the Special Interest Group of Municipal Authorities (Sigoma), may consider bankruptcy next year.
This situation, highlighted by Sigoma, signifies the first instance where many of its member councils are mulling over issuing a section 114 notice, which involves halting non-essential spending. The driving factor behind this prospective severe action is the depletion of available cash reserves to bridge budget gaps.
A primary source of financial pressure reported by councils is the surging demand for children's social care services, with government urging equal priority for these services alongside adult social care. Other significant factors include rising inflation costs and wages, with concerns of impending increases in borrowing costs exacerbating financial strain.
Notably, at least 12 other councils across the UK are currently considering issuing a section 114 notice in the coming year, as revealed by Sigoma.
Recurrent warnings have sounded regarding the precarious state of local authority budgets, with the Institute for Fiscal Studies highlighting that councils serving disadvantaged communities receive insufficient investment, primarily due to delays in planned reform of allocation formulas by the government.
In recent times, councils have been increasingly declaring bankruptcy. Notably, section 114 notices have recently been issued by Conservative-led councils Thurrock and Woking, and Labour-led Croydon and Slough. Since 2020, 16 councils have received exceptional financial support from the Department of Levelling Up, Housing, and Communities (DLUHC), with seven instances announced this year.
Sir Stephen Houghton, Chair of Sigoma and Labour leader of Barnsley Council, underscored the significant inflationary pressures local authorities have coped with, alongside mounting service demands, particularly in the care sector. He stressed the need for additional funding to cover pay increases and maintain service quality.
In response, a government spokesperson emphasized that councils hold responsibility for managing their finances, with an advisory role of the Office for Local Government to ensure accountability. The spokesperson indicated that efforts are underway to mitigate inflation and secure a 3% core spending power increase for all councils before local decisions on council tax rates. Furthermore, additional grants amounting to approximately £2 billion for social care have been allocated. Acknowledgment of the need for change in children's social care has also been signified through the government's published reform strategy.