English councils are grappling with £4 billion ($4.9 billion) gap in their finances over the next two years, threatening to further fuel a wave of bankruptcies that’s crippling local authorities.
(Bloomberg) — English councils are grappling with £4 billion ($4.9 billion) gap in their finances over the next two years, threatening to further fuel a wave of bankruptcies that’s crippling local authorities.
The Local Government Association said the funding shortfall has increased by £1 billion since its previous calculations in July after an soaring inflation worsened long-running pressures on council budgets.
The squeeze on council budgets is likely to tip more authorities into financial trouble. A string of effective bankruptcies last month included Britain’s second city, Birmingham City Council, which is Europe’s largest local authority.
The findings add to pressure on Prime Minister Rishi Sunak’s administration to address the funding crisis that has been brewing since the austerity era of David Cameron’s Conservative government.
“Councils remain firmly in the eye of the inflationary storm,” said Pete Marland, chair of the LGA’s resources board. “Severe funding and demand pressures mean that council finances are under pressure like never before.”
Councils have been squeezed since central government slashed their funding. That money also is being eroded in real terms by the worst inflation in generations. Some councils also have run into trouble after making risky bets on commercial property that have subsequently turned sour.
The LGA analysis found that the cost of delivering council services in 2024/25 will have risen by £15 billion, or almost 29%, compared to 2021/22.
“None are immune to the risk of running into financial difficulty and others have already warned of being unable to meet their legal duty to set a balanced budget and are close to also having to issue Section 114 notices,” said Marland.
A so-called Section 114 notice is issued by a local authority when its income can no longer meet spending and is know as an effective bankruptcy. The council often will have to draw up cuts to services to help fill the hole in the finances.
A long-running equal pay dispute has crippled Birmingham City Council’s finances, leading to a “potential liability” of up £760 million. Councils in Woking, Thurrock, Slough and Croydon are also among those to have issued Section 114 notices in recent years.
The LGA said it has urged Chancellor of the Exchequer Jeremy Hunt ahead of next month’s Autumn Statement to provide “immediate funding so councils can deliver the 2023/24 budgets they set this year.”
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