A dire financial crisis is looming over England's councils, deemed "out of control" by MPs, putting even well-managed local authorities at risk of bankruptcy, according to a cross-party
committee. The committee emphasized the urgent need for the government to address a £4 billion funding gap to prevent a severe impact on crucial services.
In a recent report, the Commons Levelling Up, Housing, and Communities Committee highlighted the challenges faced by councils, citing "systemic underfunding," along with escalating costs and service demands. The Local Government Association estimated a funding gap of £4 billion over the next two years for councils in England.
Committee Chair Clive Betts, a Labour MP, warned that if the government fails to bridge this financial gap, well-run councils could effectively go bankrupt. Nottingham became the eighth council to issue a Section 114 notice in November, indicating effective bankruptcy – a situation unseen in the previous 18 years.
Acknowledging the challenges, the government announced an additional £600 million in support earlier this month, on top of a £64 billion funding package for 2024-25 announced in December. The committee welcomed the extra funds but insisted on the necessity of further increases.
The report underscored the struggles of councils dealing with increased demand and costs for services, such as social care, transport for children with special educational needs, disabilities, homelessness support, and temporary accommodation. Susan Hinchcliffe, the Labour leader of Bradford City Council, revealed that nearly half of the council's budget was spent on children's social care, yet it remained insufficient to cope with current pressures.
The report urged a fundamental review of council funding, local taxation, and social care service delivery in the long term. It criticized the unsustainable practice of councils raising council tax to fill budget gaps, deeming it unfair to local residents who see reduced services while paying more each year.
The committee emphasized the disproportionate negative impact of council tax on funding levels for authorities in more deprived areas. It called for a revaluation of properties, wider system reform, and the introduction of additional council tax bands to address the increasing reliance on council tax to fund services.
A spokesperson for the Department for Levelling Up, Housing, and Communities acknowledged the challenges faced by councils and emphasized the government's commitment to addressing them through the recent support package. The government remains open to discussions with concerned councils about their financial positions. Photo by David Woolfall, Wikimedia commons.