Urban Councils Warn of Financial Failure in Letter to Angela Rayner

Photo of Deputy Prime Minister Angela Rayner on Aug. 7, 2024. Chris Furlong/PA

Councils in some of the UK’s poorest urban areas have cautioned the government that the overwhelming majority will struggle to meet their budget targets in the next financial year.

Many local authorities in the country have been struggling financially, accumulating debt and cutting services available to residents. Restricted funding affects services in social care, housing, environment and planning.

Councils in 48 urban authorities, representing 14 million constituents in England, have urged Deputy Prime Minister Angela Rayner to increase their core spending power in 2025-2026 by 7 percent. The measures will help local authorities to address the immediate funding gap, according to the Special Interest Group of Municipal Authorities (Sigoma).

In a letter to Rayner, the group’s chair Sir Stephen Houghton spoke about a “fundamental mismatch between what local authorities are expected to do and the resources they have to do it.”

He said that underfunded councils are pushed to declare effective bankruptcy and cut local services.

Financial Holes and Overspending

Sigoma’s member councils include Nottingham, Liverpool and Sandwell. Last year, Nottingham City Council has declared itself effectively bankrupt, citing the “combination of Conservative austerity, out of control inflation and rising demand in social care” as reasons for issuing the 114 notice.

In 2022, the government appointed commissioners to both Liverpool and Sandwell councils to oversee the authorities’ financial management.

In an attempt to raise money, councils turn to council tax, as their main source of locally raised income. However, poorer areas are able to generate less revenue from council tax.

“A 5 percent increase in council tax in Wokingham is going to raise twice as much as that same increase in Barnsley. But also the biggest needs for social care are in the poorest areas,” Houghton said in an August statement.

He has called for council tax equalisation in the local government finance settlement and longer-term certainty to enable councils to plan better.

A survey of Sigoma members last year found that more than half were not certain they would be able meet their 2023-24 budgets. Just 3 percent reported confidence in being bale to balance the books in 2025-2026.

In children’s social care services, 71 percent of councils said that standards will fall below-required standards, while 24 percent said they would fail to deliver the service.

Local authorities also reported low confidence in delivering adult social care, 65 percent saying they could not maintain the required standards and 18 percent warning of service failure.

A finance director in one council said that despite providing significant budget growth for 2024-25 to overspending areas, significant overspending was still likely.

“We are rapidly running out of usable reserves to fund significant overspends,” they added.

Government Response

A government spokesperson said that Labour will provide councils with multi-year funding settlements. The action is meant to end “competitive bidding for pots of money” and reform the local audit system.

Shortly after their general election victory, Labour renamed the renamed the Department for Levelling Up, Housing, and Communities, returning to its earlier title of the Ministry of Housing, Communities and Local Government.

“This is a step in the right direction for recognising the importance of local government. Hopefully this positive start will be followed by the changes we need,” Houghton said.

The government also announced plans to widen and deepen devolution across the country, extending the local authorities’ powers. In her letter to local leaders, Rayner said in July:

“My Cabinet Colleagues and I also understand that all too many councils are facing financial strain and have been left balancing new obligations with higher costs and interest rates after a decade of financial mismanagement from the centre. Rest assured, we will ensure that you have the resources to deliver new devolved powers and functions.”

The government is expected to announce public spending cuts in the upcoming October budget. Ahead of the Autumn Statement, the Local Government Association (LGA) has warned against “any disastrous further cuts,” given the more than £2 billion funding gap councils face next year.

“With 18 councils already relying on Exceptional Financial Support from the Government to balance their books this year, we are warning that there is a growing risk of systemic financial failure,” the LGA said.

PA Media contributed to this report.