Will Northamptonshire be the last council to go bankrupt? We’ve crunched the numbers

Birmingham Town Hall. Image: Very Quiet/Wikipedia Commons.

In two months’ time the UK will hit the 8th anniversary of the Conservative’s austerity programme – an economic strategy that has survived three elections, two Prime Ministers, and several missed deficit elimination deadlines.

Much of that burden has fallen on England’s councils. In early March, the National Audit Office released a report which showed that government funding for local authorities has dropped by 49 per cent in real-terms since 2010, resulting in a 29 per cent drop in spending power.

Since austerity began, councils have been protesting the squeeze in funding from central government – and in February, the first domino finally fell.  By enforcing a section 114 notice, Northamptonshire County Council became the first local authority in over 20 years to effectively declare itself bankrupt, banning all new expenditure in order to hit its legally required balanced budget.  Now, the question may not be if more councils may follow suit, but when.

Austerity may not be on everybody’s lips anymore, but its effects are still rippling throughout the country. Future reductions in funding have led the Local Government Association to project an overall spending gap of over £5bn by 2020, meaning councils will be scrambling to cut costs and generate additional income in order to fulfil their services. Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, has given a bleak warning: “Through my own conversations with chief financial officers, I have heard a number of warnings that councils may soon face untenable budget positions…The warning signs have been plain to see for a number of years.”

Future cuts come at a time when council services face enormous demographic pressures resulting in increased demand. There were 1.8m new requests for adult social care in 2015-16. Meanwhile 23.1 per cent of children are expected to be living in absolute poverty by the end of the decade, a rise from 17 per cent in 2009.

Without an increase in funding, it is difficult to see how councils will be able to meet these demands. Both the adult social care and children’s services departments take up huge portions of a council’s yearly budget. Research from the Bureau of Investigative Journalism has found that over 100 councils in England are known to have overspent on their Children’s Services budget this year. Add to the mix the slowdown in projected GDP growth, due to the uncertainty surrounding Brexit, and councils are facing a difficult task to cover financial gaps in their medium term financial planning.

So how big is the gap? The effect on some of England’s cities is as follows:

  • Manchester City Council identified a funding gap of £60m between 2017 and 2020, due to be eliminated through savings, a large part coming out of the adult social care budget.
  • Liverpool has identified a budget gap of £90.3m up to 2020, proposing more cuts which will help bring its overall budget savings to £420m between 2011 and 2020.
  • Bristol has identified a £46.7m gap which will require further savings on top of £33m in cuts this year.
  • Birmingham has already accumulated budget savings of nearly £650m since 2010. and has identified a further £123m in cost-cutting measures needed by 2022. The city’s financial report warned, "Consequently Birmingham City Council of the future will look very different from the one we had before austerity began." Worryingly, the council arrived at this figure after taking into account a plunge into budget reserves by £30m next year, and has admitted that future savings are becoming harder and harder to identify. Most ominously of all, the report announced, "the City Council has also had to consider whether, in some instances, it can no longer afford to provide its current level of service."

The problem is not just isolated to England: the devolved governments also have councils struggling to balance future budgets. Cardiff City Council is facing a £73.5m gap between 2018 and 2021, to be partially offset by £52m in savings. Edinburgh has identified £151m in savings to be found by 2023.

Then we come to Leeds City Council. In July last year the council produced a report projecting a £30.5m spending gap between 2019 and 2021. After planning future council tax increases up to the maximum cap limit, as well as millions in savings, the council stated: “At this stage it has not been possible to identify sufficient savings or income generation opportunities with which to entirely close the gap in the Council’s finances over the next three years.”

Since then, the Council has not come up with any fresh ideas, and the gap has more than doubled. It now stands at £71.9m.  A Leeds Council spokesperson said:

“We are absolutely committed to protecting frontline services, particularly for those who need our support most. To balance those burgeoning costs, we continue to look at ways to make the most of our limited funds and our investment in staff.  

“By targeting resources at preventative services, the council has ensured that the impact of changing demand and demography (which has resulted in significant cost pressures in many other councils) has been contained, for instance within children’s services and adult social care.”

It is worth noting that the council has managed to keep every single children’s centre in Leeds operating, with a commitment to carry on with no closures. That comes in stark contrast to the national picture: over 500 centres have closed in the UK since 2010.


In facing these budget pressures, one alarming trend has emerged: the NAO revealed that one in 10 local authorities could run out of reserves within the next three years, after dipping into their reserves to cover spending. In response, Meg Hillier, MP for Hackney South & Shoreditch and chair of the Public Accounts Committee, said many councils were relying on “rainy day funds” to pay for vital services. The Bureau of Investigative Journalism also found that 22 councils had reduced these reserves by more than 50 per cent in the last five years.

As well as dipping into reserves, councils also have to come up with ways to increase their income. Last month the LGiU found that 95 per cent of councils were hiking council tax, and 93 per cent were raising charges.

Whether these changes will be enough to prove Northamptonshire to be an isolated case remains to be seen. But for now, the warning signs could not be clearer.

Reporting on this story was aided by The Bureau of Investigative Journalism.

Nathan Fogg is a freelance investigative journalist.

 
 
 
 

After Brexit, the case for more powerful local government in England will become stronger than ever

Not an ITV crime drama, but the key to a brighter future. Image: Getty.

For many cities and regions across the UK, Brexit carries profound risks. It seems highly likely to trigger a period of economic instability, as investors seek a better understanding of the on-the-ground realities of a post-EU Britain, as the pound responds to changing economic conditions and as new relationships are established in Europe and beyond.

Leaders of local authorities – already feeling the impact of a decade of austerity and sluggish growth – are worried about their futures under Brexit. In August, Plymouth City Council became the first to issue a legal challenge to the British government over Brexit, requesting information and analysis about possible impacts on the local area. And in October, the eight metropolitan mayors called for further devolution and increased funding under Brexit.

But do these local leaders have the capacity to bring about the changes necessary to deliver a better future for cities and regions? Our research from 2017 suggests that places in England too often lack the leadership they need to achieve a prosperous and secure future.

Odd one out

We compared local leadership in England with Finland, Germany, Italy, Australia and the USA, and found that England was – in some important respects – the odd nation out. When we asked local leaders how they would respond to either a major economic shock or opportunity, the pathway to effective action was far less certain and much less transparent than elsewhere.

For example, in England, local leaders said that they would work within networks of firms to develop complex strategies involving the public and private sectors on the ground, while also seeking central government support. By contrast, in Finland, Germany and Italy the relevant mayor would take charge, with support from their professional staff and central government.

There have been some shifts toward the European model, with the introduction of combined authorities and elected mayors in some parts of the UK from 2011. But according to the participants in our study, this move has added complexity and could reduce coordination in local government, as new ways of working had to be found when previously important roles, such as local authority chief executives and council leaders, were forced to concede some control.

Even so, the local leaders we interviewed also saw this move as adding to the legitimacy of local leadership, because the mayors are directly elected, as well as providing a focal point for community mobilisation and buy-in.

Yet there is a real gap between public expectations of mayors and their formal powers and authority in the UK. And since not all parts of England have mayors, it’s harder for elected leaders to assert their influence at a national level, share their experiences with others and find collective solutions to the problems in their cities.


An ad hoc approach

Local leaders in England have also found it difficult to build momentum and public support for devolved forms of governance. The private sector has a prominent role in local governance through their role on Local Enterprise Partnerships and through prominent business member organisations. Some of the participants in our research saw this as a strength, but they said it also brought uncertainty and ambiguity.

They felt that the reliance on interpersonal relationships between key people in the private and public sectors resulted in an ad hoc approach to local issues and initiatives. There was little learning from past experience, so every challenge required a bespoke approach. As a result, responses tended to be reactive rather than strategic, and short term rather than comprehensive or systematic.

As it stands, England’s local leaders do not seem to be in a good position to ensure a smooth transition through Brexit. National economic and political processes have a significant influence on the well-being of cities and regions in the UK, and Westminster holds its power tightly. In Europe and elsewhere, local leadership has a greater impact on local economic performance.

A new role

Brexit will reshape the UK economy and society, as well as how the nation is governed. There is a strong case to introduce mayors in other English cities and to allow them to take a greater role in political life. Elected mayors could, for example, have an important role working with central government to determine what powers might be repatriated to a local level, after Brexit. So far, they’ve had little opportunity to negotiate.

Mayors are also well placed to act as ambassadors for their local areas by developing strategic partnerships with elected leaders and business interests in Europe and beyond, effectively bypassing central government. Yet they currently lack the powers and prestige of their European counterparts.

There is also scope for elected mayors to influence national and global debates by acting as a united force to demand greater devolution after Brexit. But it’s clear that some elected mayors in England are in a better position to negotiate with central government than others, because of their public profile and perceptions of competence.

Greater devolution will be necessary to empower local leaders to look after the interests of their citizens, while the UK repositions itself in the global economy. Sharing power at the local level will be an important step to greater prosperity and political stability in the nation, after Brexit.

The Conversation

Sarah Ayres, Reader in Public Policy and Governance, University of Bristol and Andrew Beer, Dean, Research and Innovation, University of South Australia.

This article is republished from The Conversation under a Creative Commons license. Read the original article.