More than half of English councils are likely to issue a section 114 notice within the next five years, according to a new report from the Local Government Information Unit (LGIU).
LGIU’s ‘The State of Local Government Finance in England 2024’ report, which anonymously surveyed council leaders, chief executives, chief finance officers and cabinet members for finance, has revealed the worrying statistic.
The report found that 51% of those surveyed warned their councils are likely to go bust in the next parliament unless local government funding is reformed.
Additionally, 9% of council respondents said they were likely to declare effective bankruptcy in the next financial year – representing 14 unique councils.
One in five councils (21%) said they would continue to sell publicly-owned assets to help ease financial pressures. More than half of respondents drew on their reserves this financial year and plan to draw on them again in the upcoming year.
Nine in ten respondents plan to increase fees on areas such as parking and environmental waste, and the same proportion plan to raise council tax.
Nearly a third of councils will make significant cuts to services, according to the report. Some 31.9% of respondents plan on cutting parks and leisure, with 30.6% cutting arts and culture and 30% slashing business support. One in ten will cut SEND services, while 11.9% will slash children’s care services and 16.2% will cut adult social care.
Just 4% of respondents had confidence in the sustainability of local government finance and only 6% are happy with central government’s performance on understanding the scale of the problem facing council finances, the report found.
In total, LGIU’s survey received 160 responses from 128 (out of 317 total) unique councils across England.
The LGIU report also found that even for councils that manage to balance the books, there are concerns that some services they provide may fall below legal standards, which “will continue unabated without costly legal challenges”.
The report highlighted a statement from one survey participant that appeared to sum up the local government finance crisis: “It feels the worst I’ve ever known it (even than when I started in the early nineties) with no prospect of change,” the participant said. “Chief finance officer conferences feel more like group therapy nowadays.”
Jonathan Carr-West, LGIU’s chief executive, commented: “We have long-warned that a lack of funding combined with inflation and rising need for adult and children’s social care, homelessness, and SEND services has pushed councils to the brink.
“This year’s report reveals the desperate, ruinous financial situation councils find themselves in. Cutting services, borrowing more money and spending reserves year after year is completely unsustainable. Citizens are being failed.”
Carr-West added that with over half of councils warning us they are at risk of bankruptcy within the next parliament, “it is no longer possible to blame individual governance issues”.
He said: “There clearly is a systemic issue and rather than bunging local government panicked injections of cash, whoever wins the next election will need to reform the entire system, bringing back multi-year settlements based on an area’s need and developing new ways of revenue raising.”
Possible solutions
The LGIU presented potential solutions to the local government financial crisis alongside the key findings. Any solution should not add more pressure on the taxpayer, it said.
One possibility is sharing surplus funds between wealthier and more deprived councils; another is allocating central government funding to areas based on need rather than bidding.
LGIU’s report found that multi-year financial settlements were favoured by 97% of respondents, with ending competitive bids for funding and 100% business rates retention approved by three-quarters.
Yearly finance settlements incentivise short-term financial planning, such as the reduction in preventative services to make ends meet annually, even if these end up costing more in the long term, the LGIU said.
The LGIU added that it had worked with the University of Northumbria to understand how local government is funded differently in other countries, finding that across Japan, Italy and Germany “there are lessons for how to improve the system of local government finance in England”.
Making funding match needs, embedding systems to share wealth between different local authorities to make up for different capacities to raise income, bringing together central and local governments, and rethinking local taxes “all part of the solution”, it found.
Room151 has also looked for potential solutions to the crisis in recent weeks. Christian Wall and June Matte, of independent financial advisor PFM Financial Advisors, believe introducing a UK equivalent of the US’ National Resource Network programme will change the local authority landscape for the better – and could be implemented in just three months.
While Wiltshire Council’s approach to finance, which focuses on preventative investment and taking a continual long-term view, could be transformational for the sector, according to council leader Richard Clewer.
Potential solutions will also be discussed at Room151’s Local Authority Treasurers Investment Forum North (LATIF North) conference, which will be held in York on 19 March. There is still time to register to attend the event and be part of the discussion.
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