With the budget looming on Wednesday Alan Shipman, senior lecturer in economics at The Open University, says if councils don’t get the help they need life will get a lot harder where YOU live.
Jeremy Hunt’s Budget options have been narrowed by the growing financial crisis in Britain’s Town Halls as hundreds more councils are expected to raise the alarm.
If the Chancellor’s 2024/25 spending plans don’t include a large contingency plan for Town Hall distress calls, the outlook for residents in their areas looks grim.
They can expect to see a squeeze on council-provided nurseries, care homes, waste collection, community health, sports halls, parks, bus services and road repairs will get a lot worse nation-wide in the coming year.
So far, there are a handful of local authority ‘bankruptcies’ from 2023 that could be blamed on one-off miscalculations – equal-opportunity backpay, failed IT and unwise property investments.
More council deficits on the horizon
But more are likely to slide into deficits that halt further spending (under the ‘Section 114’ procedure), and others will run out of stopgap funds raised by earlier asset sales.
The Commons levelling-up committee has identified a £4bn shortfall in local government finance for 2024-25, much of which the Treasury may have to fill after the election.
There have long been calls to give councils the power to raise more of their own funds, but these are countered by demands for more central funding, to avoid growing inequality between regions based on the size of their tax base.
Even when cash-strapped authorities are bailed out, like Northamptonshire County Council in 2018, councils with financial deficits will be forced into budget choices that make the Chancellor’s look easy.
Services being slashed
Birmingham City Council’s £300 million budget deficit has forced it to announce a 21% council-tax rise across the next two years and all-round spending cuts, including the withdrawal of all arts funding.
And at Nottingham City Council, which is tackling a £50m gap, the axe will fall on care homes and community facilities, with new charges for surviving services.
After years of trimming waste, closing non-essential facilities and sharing essential ones, the next economy drive for local councils nationwide will hit services many households already struggle to afford and can’t do without.
The nearly 10% of councils that could declare insolvency in the next 12 months have not made any obvious financial errors, according to the latest Local Government Information Unit poll.
Squeezed by more budget pressures
They’ve been squeezed by steadily increasing financial demands – especially for young and old-age care, transport subsidies, social housing and environmental improvement – and a real-terms reduction in funding from central government, which quickened when inflation took off in 2022.
Total local authority income fell by 17.5% between 2009/10 and 2019/20, according to the Institute for Government research. It was still 10.2% lower in 2021/22 than 2009/10, despite higher central funding during the pandemic.
While successive Chancellors claimed credit for reining in the UK budget deficits that ballooned after the international crises in 2008 and 2020, they passed on many of the toughest choices to local government treasurers.
Local government fund-raising powers are unusually small in the UK. In England, council tax funds around half their budgets, and business rates collect 25-30%. So more than 20% must come from the Westminster government.
Funding for Scotland, Wales and Northern Ireland is linked to that for England via a ‘Barnett Formula’ dating from the 1970s.
Since councils in the nations can’t borrow the way the Treasury does, any deficit can quickly push them into tax increases and spending cuts that sap the local economy and make their job even harder.
Where financial pressures forced councils into short-term borrowing, the sharp rise in interest rates since 2022 has dealt a further financial blow.
So while the Chancellor will claim credit for making difficult choices on Wednesday, they won’t be nearly as hard as the tax and spending decisions that continue to confront local authorities in the weeks leading up to this Budget.
