English councils warn inflation driving them deeper into cash crisis

LONDON (Reuters) – Local government councils in England face a widening gap in their finances that threatens cuts to services in towns and cities as inflation worsens an existing shortfall in funding, their representative body warned on Friday.

England’s local councils collectively are 4 billion pounds ($4.86 billion) short of what they need to maintain services at current levels over the next two years.

That estimated gap has risen by a third from 3 billion pounds in July due to updated national inflation forecasts, the Local Government Association (LGA) said.

The warning comes a month after the central English city of Birmingham, the largest local authority in Europe, effectively declared bankruptcy by announcing its income was insufficient to meet costs.

“Councils remain firmly in the eye of the inflationary storm and severe funding and demand pressures mean that council finances are under pressure like never before,” Pete Marland, Chair of the LGA’s Resources Board, said.

Marland said no council was immune from financial difficulties and some were close to following Birmingham into effective bankruptcy.

Cash-starved councils have added to the impression many voters have of decaying public services in Britain, especially during a year marked by a wave of disruptive strikes and the discovery of crumbling concrete in buildings such as schools.

Local authorities collect a council tax to provide a range of services including waste collection, fire and public safety, libraries, and social care.

But, the LGA argued that council tax increases were not a viable solution to raising more money during a cost-of-living crisis.

Instead they called on finance minister Jeremy Hunt to provide extra funding in the government’s autumn budget update next month.

The LGA, which represents nearly all of England’s 317 elected local authorities, said councils had seen a 27% real-terms cut in core spending power since 2010, when the British government began an austerity drive following the global financial crisis.

($1 = 0.8235 pounds)

(Reporting by Sachin Ravikumar; editing by William James)