One-Third of Poor Area Councils Contemplating Bankruptcy
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. Another nine councils, part of the Special Interest Group of Municipal Authorities (Sigoma), may consider bankruptcy next year. Depleting cash reserves, driven by increased demand for children's social care and rising costs, are causing this dire situation.
The Special Interest Group of Municipal Authorities (Sigoma) disclosed that this is the first time many member councils are contemplating a section 114 notice, which restricts non-essential spending. The major reasons behind this drastic action are dwindling cash reserves and pressures on children's social care services. A potential rise in borrowing costs is also a concern. Around 12 other councils are contemplating issuing a section 114 notice in 2023/24.
The Institute for Fiscal Studies has repeatedly warned about the precarious state of local authority budgets, attributing it to delayed reforms in the formulae determining government allocations.
Since the year 2020, 16 councils have received special financial support from the Department of Levelling Up, Housing and Communities (DLUHC), with seven such announcements this year.
Sir Stephen Houghton, Chair of Sigoma, stated that councils are under considerable pressure due to inflation, increased service demand, and wage hikes. He urged the government to provide adequate funding to cover these challenges.
A government spokesperson acknowledged the pressures on councils and mentioned efforts to address inflation and ensure a 3% rise in core spending power for councils before decisions on council tax rates. Additionally, around £2 billion in grants for social care has been allocated. The spokesperson also highlighted ongoing reforms in children's social care.