For the past 13 years, Britain’s councils have “worked miracles” trying to balance their budgets. Those are the words of Sir Stephen Houghton, chair of Sigoma, a consortium of 47 urban local authorities in the UK: 14 of the councils in that group are at risk of bankruptcy, in the UK, at least 26 are at risk.
Local authorities in the UK cannot technically go bankrupt. However, if they fail to balance their books, they have a statutory duty to issue what is known as a “Section 114 notice”. This requires a pause in funding of all “non-essential” services, while a new budget is drawn up.
For almost 20 years, these have been rare; the first S114 was issued soon after the legislation introducing it was introduced, by Brent in 1988. This was followed by a spurt of London-based councils issuing them, ending with Hackney in 2000. Yet recently, such notices have become increasingly prevalent in local government.
In the past five years alone, seven local authorities have issued the notices. Most of these were due to financial distress, with the exception of Nottingham, which unlawfully spent money on its collapsing energy firm. Woking, which under Conservative-control made some comically bad property investments, is estimated have lost up to £1 billion: that’s significantly less than Birmingham, which has 15 times the population and issued its S114 this September.
Local authorities’ spending power is estimated to have fallen 29% since 2010, according to a 2018 National Audit Office report. Responding to the Guardian, the Government stands that “councils are ultimately responsible for the management of their own finances”. Yet the Treasury itself has admitted that the UK is “almost the most centralised developed country in the world”. The Government seems eager to shift the blame onto local authorities, despite its own austerity measures having played a significant role in this string of S114s.
The future for local authority finances does not look bright. Birmingham has already began considering “fire sales” of its assets, which amongst other things include its share in Birmingham airport, its landmark central library, as well as many of its cultural centres and social housing estates. Birmingham already has the highest proportion of benefit claimants in the UK, with 22% of its population being income deprived, according to the ONS.
It’s not hard to see how selling Birmingham’s libraries and museums to private owners would further deprive its population of the institutions it needs. In 2015, it sold the NEC Group, owners of many Birmingham convention centres and stadiums. Since then, hundreds have been controversially fired and the company itself is of questionable finances.
How has the Government tried to address this? With what it is calling “Levelling Up” grants. Areas, mainly those in the North, are given varying priorities and are allowed to bid for grants
for major projects. Yet already it has been criticised for not providing enough sustained support. Without long-term funding, the scheme “will fail”, says the… Levelling Up, Housing and Communities (LUHC) Committee(!). “Levelling up” deprived areas is an admirable goal (albeit with a slightly childish name), but it won’t make up for years of cuts and grant revocations: it will just sweeten the pill.
The Levelling Up Fund has a size of £4.8 billion: that may sound like a lot, its size is only 0.2% of the GDP: for reference, the Institute for Government estimates that council spending has, in real terms, been cut by £10 billion since 2010. For something that is meant to help just deprived local authorities, it seems to already be dead in the water
The slightly less obvious problem is that bidding is expensive. Better financed authorities are able to put together better bids. According to research by National World, £27 million has been spent by councils on bids: £5 million of that sum was spent on unsuccessful bids. This data was collated from 245 separate requests to local authorities, the DLUHC has published little of its own data and, in reports to Parliament, has admitted that even it doesn’t have the complete data when making decisions. How can we expect these grants to “level up” areas to their best potential if the government lacks sufficient information when making them?
Croydon, one of London’s most wealth inequal boroughs, approved a 15% council tax increase this March. Other authorities are following suite. Residents in Croydon, already troubled by the cost-of-living crisis, will on average have to pay £235 more on their council tax per year. Already there are reports of schools and libraries not receiving the funding they need, and cultural institutions struggling to stay open without their grants. Brick by Brick (BbB), the deeply flawed council-owned housing company that was the catalyst for its bankruptcy, delivered 460 homes in five years: Croydon themselves say that 33,000 new homes will be needed by 13 years’ time, i.e. 2500 a year, more than five times what BbB took to build in five. Croydon’s risky gamble has backfired tremendously badly, leaving it with an incredibly precarious future.
So, what is the future for other local authorities that are facing equally dire circumstances? The sad reality is that no one seems to know, not even central government itself. Levelling up grants are no substitute for the axe taken to funding in the last decade, and even before the recent streak of S114s we have for years seen public services suffer. Local government exists to remove the bureaucracy of a centralised society, yet now it is widening the disparities evermore so.
Authorities need more sustained funding over a longer period, without the incessant worry that it will suddenly be slashed in favour of another disastrous transport scheme or scandalous contract. Many are almost begging for more funding, Sigoma, mentioned at the start of this article, is now putting out a new request near-weekly to the government for a better funding structure. Yet the sad truth is that we will probably not see the changes that are so desperately needed for some time. Many more Section 114 notices are to come.