Somerset Council has declared a 'financial emergency'

One-in-five councils facing ‘bankruptcy’, LGA survey shows

Paul JonesDecember 6, 20230 Comment0

ALMOST one in five council bosses say they think it is fairly or very likely they will go bankrupt in the next two years, according to a new survey.

The Local Government Association (LGA) surveyed council leaders and chief executives over financial problems after a number of authorities issued Section 114 notices – effectively declaring themselves bankrupt.

And almost 20% of those who responded said it was very or fairly likely their chief finance officer will need to issue a notice this year or next due to a lack of funding to keep key services running.

The LGA estimates that councils in England face a £4 billion funding gap over the next two years to keep services standing still.

The Government said it is providing above-inflation increases in council funding next year.

But last month’s Autumn Statement failed to provide the additional funding needed to protect services from further cuts, the association added.

In 2024/25, councils will be able to increase general council tax by 3 per cent without the need for a referendum.
Those with social care responsibilities will again be able to increase the adult social care precept by up to a further 2 per cent.

The LGA said it leaves councils having to choose whether to increase council tax bills to bring in desperately-needed funding, when they are acutely aware of the significant burden that could place on some households.

The LGA survey – of council leaders and chief executives – also revealed:
* Half are not confident they will have enough funding to fulfil their legal duties next year (2024/25), including the delivery of statutory services.
* Nearly two thirds of council leaders and chief executives said there were no announcements in the Autumn Statement they thought would help them deal with their council’s financial position.

The survey came after Somerset Council last month declared a ‘financial emergency’ as it faces a £87 million funding gap for 2024/25.

Leader of the council, Bill Revans (Lib Dem, North Petherton), has written to Michael Gove, Levelling Up Secretary, in an appeal for more funding for local authorities.

Meanwhile, Mr Gove has said councils would receive an above-inflation rise in funding next year.

And a Department for Levelling Up, Housing and Communities spokesperson added: “We have made an extra £5.1bn of funding available to local authorities in the last financial year worth an additional 9.4% in cash terms to budgets.

“Councils are ultimately responsible for the management of their own finances, but we stand ready to talk to any council that is concerned about its financial position.”

Michael Gove says the Government is giving councils more money next year

But the LGA said the circumstances that have led to a Section 114 notice so far have been unique to each local area and the pressures they face.

However, all those that have had to curb spending in this way have faced the same underlying pressures, the association said, with councils’ core spending power falling by 27 per cent in real terms from 2010/11 to 2023/24, the impact of the pandemic, rising demand for services, in particular statutory services like social care and homelessness support, and the extra costs to provide them.

Cllr Shaun Davies, LGA chair, said the Government urgently needs to use the forthcoming provisional Local Government Finance Settlement to provide councils with sufficient resources to set balanced budgets next year without having to make drastic cuts to services.

“The lack of funding for local services in the Autumn Statement has left councils facing a growing financial crisis,” he added.

“No council is immune to the risk of running into financial difficulty. As our worrying survey shows, many now face the prospect of being unable to meet their legal duty to set a balanced budget and having Section 114 reports issued.

Cllr Shaun Davies, chair of the Local Government Association. Picture: Telford & Wrekin Council

“Local government is the fabric of our country, with councils providing hundreds of services that our communities rely on every single day. For many people, these services are a lifeline.

“If councils cannot thrive then our communities cannot thrive. If social care services that councils provide cannot cope with demand, then pressure on the NHS will grow further. If council housing teams can’t succeed, then all of our hopes for new homes will not succeed.

“While councils have worked hard to reduce costs, find efficiencies and transform services, the easy savings have long since gone. The Government urgently needs to act to address the acute financial challenges faced by councils.”