Council bankruptcies: the ticking timebomb at the heart of local government

By Johnny Cartin

Generally, you wouldn’t consider a country’s largest council going bankrupt to be a robust sign of its political health, and if you’ve come to this article in hope of finding information to the contrary you’re going to leave disappointed. On 6th September, Birmingham City Council issued a section 114 notice. Effectively, this allows councils to declare they can no longer balance their budget as legally required and are thus bankrupt. A year ago, the city was hosting the Commonwealth Games; now, residents are left wondering how their bins are going to be collected and whether essential public services will run.
How did it come to this? In Birmingham’s case, a few particular details stand out; a roughly £1 billion pay-out on equal pay claims and an over-cost IT system installation have brought the council to the brink. Don’t be fooled into thinking it’s a one-off, however; councils the country over, from Labour-run Birmingham to Conservative-run Thurrock, are teetering on the edge of oblivion.

Councils doing essential work the country over are sitting on a timebomb

While councils are legally required to run a wide number of services, from park maintenance to providing free libraries, they can only raise funding via council tax, and are dependent on central government to provide the majority of their cash. Since austerity, successive governments have identified local authority grants as ripe for slashing – it’s rarely ringfenced or protected and less controversial than, say, spending less on the NHS. Councils have seen a 60 percent decrease in funding between 2010 and 2020, which makes it understandably hard to maintain the same level of service.

Different councils have turned to different solutions. Councils under devolved administrations have suffered less, with English councils doing the worst. Many have borrowed excessively and invested in risky property or business enterprises, with predictable outcomes. Take Woking, a council representing around 100,000 people – the 230th biggest district of 314 in England. With huge cuts to its budget, it invested in hotels and skyscraper projects that failed to fill their financial hole. It managed to rack up £2.6 billion in debt before being put into ‘special measures’ in May last year, with MPs describing the debt as “staggering” and warning the government was turning a blind eye to more cases like this. Other councils have simply declared they will provide the bare minimum of legal services, leaving residents worse off and with less support.

Councils doing essential work the country over are sitting on a timebomb, and the ticking is getting louder. Successive Conservative administrations have looked gleefully the other way, even now blaming the failure of Birmingham on its Labour leadership and trying to spin the collapse into a tale of reckless spending. But as Sunak’s administration staggers on, it may find the council crisis becomes a boiling point; people really don’t like it when their bins aren’t collected. A warning from a group of 47 urban councils that as many as half of them could be bankrupt within two years is potentially just the tip of the iceberg. As is becoming a running theme in British politics, a short-sighted solution can often create more problems than it fixes.

Is there a solution, a different way of doing things? An attempt to rip up the system of local councils and replace it with something more ‘efficient’ would likely end up where it started after huge expense. The most quietly radical act a new government could take would be to put more power back into councils’ hands; give them sufficient funding to meet and improve on their requirements and trust them not to make risky financial decisions, now that the necessity to do so would be gone.

The most quietly radical act a new government could take would be to put more power back into councils’ hands

Would we then see an explosion of progress in neglected areas countrywide, with some green shoots of spring after the harsh and long winter? The likely answer is that things will continue to get worse before they get better. Like a sick man, this country continues to stumble on without treatment; itching at the infection rather than healing it. Let’s hope it doesn’t come down to amputation.

Image: Peter Glyn via Wikimedia Commons

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