Last November, Nottingham City Council was the sixth council since 2021 to issue a Section 114 notice. And a poll from The New Statesman Spotlight says a quarter of councillors believe they’ll soon have to take the same action.

Section 114 notices effectively mean the council has filed for bankruptcy, putting a stop to all new spending on non-statutory services.

Some of these notices have been linked to alleged financial mismanagement – Thurrock, for example, got into difficulties, in part,  after borrowing heavily to invest in solar farms.

However, councils have found themselves in a bit of a catch 22. On the one hand they’ve been under pressure to cut spending and balance budgets. But on the other, they’ve been encouraged by central government to be bolder in their commercial ventures.

How did we get here?

Back in 2013, then Chancellor George Osborne reduced central funding as part of the government’s austerity measures. Central government funding dropped by 40% in real terms between 2009-10 and 2019-20. Dropping from £46.5bn down to £28bn. To make up that gap, local authorities were told they could instead keep a higher portion of income from council tax and business rates.

But it’s created a major imbalance. The more affluent areas can set higher tax rates, and more of their households are able to make their payments. Whereas with councils in poorer areas, the opposite is true.

The Institute for Fiscal Studies say the fifth poorest local authorities get 10% below their needs, whereas the fifth richest get 15% above. Also, the policy around business rates never did materialise.

And the demand for our services is rocketing. Our aging population is pushing our social care system to the limit. The fallout from the pandemic has seen a surge in referrals for childcare services.

And then there’s the housing issue. Homeless charity Shelter report the number of households living in temporary accommodation has grown to 100,000, and the cost for councils to cover that reached £1.7bn between April 2022 and March 2023.

This is all set against the backdrop of the cost-of-living crisis, with the costs of running and repairing services reaching record highs.

Clive Betts, chair of the Commons Levelling Up Select Committee, is leading an inquiry into council finances, and believes the sector can’t survive on this trajectory: “I think if we don’t do something in the next parliament, my guess is half the councils in the country will go bankrupt.”

How can councils react?

After surveying 100 council reps countrywide, consultancy firm Mazars recently published their public sector report – “Beyond efficiency: what’s left for local government?”. And the one major efficiency-saver still in the council’s hands is their technology strategy.

Digitisation is ongoing across the sector, but a lot more work needs to happen to really start making services more cost-effective. 92% of respondents say their organisation has moved their digital journey forward, but their assessment of its scope and impact was modest at best.

And there are still so many challenges preventing them from getting to a more agile place. From budgets, to legacy systems, to lack of talent and training – it’s hard for councils to stay optimistic about just how far technological advancements can take them.

Or as one respondent put it: “After 13 years of cuts there isn’t much ‘efficiency’ left to find!”

Sources

https://www.newstatesman.com/spotlight/economic-growth/regional-development/2023/11/council-bankruptcy-tracker-local-government-authorities-finances#:~:text=Councils%20in%20financial%20distress,of%20debt%20for%20their%20size

https://news.sky.com/story/why-are-councils-going-bankrupt-13018122#:~:text=Again%2C%20many%20of%20these%20councils,over%20investing%20in%20solar%20power.

https://www.mazars.co.uk/Home/Industries/Public-Social-Sector/Public-and-Social-Sector-insights/Beyond-efficiency-for-the-public-sector

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