Half of all Local Authorities in England at Risk of Going Bust Next Year

Half of all the 350 local councils in England could be at risk of going bust next year unless urgent action is now taken by the Government, the Levelling Up Secretary Michael Gove has been warned.

Clive Betts, the Labour chair of the Commons Levelling up, Housing and Communities Committee, has written to the minister in advance of his appearance before the committee next week expressing their concern, following an inquiry which revealed the financial distress currently facing councils across the country.

In his letter to Gove he quotes John Fuller the Vice-chairman of the Local Government’s Resources and Economy panel and the Conservative leader of South Norfolk council, warning that: “We are probably at an inflection point, where the number of authorities contemplating issuing 114 [bankruptcy] notices is becoming more general, as opposed to the specific reasons we have seen thus far.

“There is a general understanding that if not this year, next year, about half of the authorities will be in distress. That is a significant number. “

The committee found that the situation had been made significantly worse by a huge backlog in auditing of local councils because they could not get private firms to do the work.

So far six authorities have had to declare they have run out of money – Labour run London borough of Croydon, Conservative run Thurrock, Liberal Democrat run Woking; Labour run Slough, Labour run Birmingham and now joined by Labour run Nottingham. This is leading to huge increases in council tax and services being pared to the legal minimum.

Critics say that some cases – such as in Croydon and Thurrock – have been largely caused by bad decision making and risky commercial ventures which ran into trouble. However, the growing scale of the problem goes well beyond local issues.

Mr Betts writes: “Throughout our inquiry, we have heard from councillors, officers, and independent experts who have informed us that many local authorities face a difficult financial situation, with severe demand and cost pressures impacting on local authorities’ ability to deliver key services to their residents. This situation is becoming untenable for some local authorities and greater central Government support is clearly required.”

Among the councils complaining about support from Government include Conservative controlled North Yorkshire, which covers Rishi Sunak’s Richmond constituency,

Gary Fielding, an official from the council is quoted by Mr Betts as saying “We have moved from having one or two councils, with particular issues—whether it is maverick behaviour or leadership—being affected, to having what I regard as good councils, run by good officers and with political stability, now facing existential challenges.”

Mr Sunak has so far used the crisis in councils to blame Labour. He cited Birmingham’s crisis an example of what would happen if Labour was in government, condemned Labour run Kirklees Council which runs services in Huddersfield as “not fit for purpose” and he said on Nottingham “working people are paying the price” for Labour councils’ “financial mismanagement” after Nottingham City Council went bust.

However a recently published analysis by Moody’s, the credit rating agency has singled out 20 councils notably a slew of councils in Surrey, West Sussex and Essex that had high debt ratios. These include Spelthorne, Surrey Heath, Worthing, Runnymede, Brentwood, Uttlesford, Guildford, Adur  and Epsom and Ewell. These are all councils that the Conservatives lost a lot of votes and some like Worthing and Surrey Heath- which is Gove’s own constituency- where Labour and the Liberal Democrats gained control.

Unlike the big cities affected they represent small towns and rural and suburban areas.