Warning one in 10 county councils face effective bankruptcy

One in 10 county councils in England is facing effective bankruptcy - putting vital services at risk, local government leaders have warned.

In September Birmingham City Council was forced to slash spending after declaring itself effectively bankrupt.

More local authorities fear they could be next, according to a survey by the County Councils Network.

They are calling for emergency funding from the government to stave off financial collapse.

The government said it had already made £5.1bn extra available to local authorities for 2022/23 - and was ready to talk to any council concerned about its financial position.

Labour-run Birmingham City Council faces a bill of up to £760m following equal pay claims and a flawed IT system that spiralled over budget, leading to questions about the council's governance.

However, local government leaders are warning other, "well-managed" county councils could follow suit.

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As well as increased funding, councils are calling for longer-term budget settlements to allow them to plan their finances.

Soaring inflation has driven up costs and many councils are facing an increase in demand for the services they provide - such as adult social care, education and highways.

Children's services

County councils are forecasting they will overspend their budgets in 2023/24 by £639m this year - an average of £16m per council.

Growing demand for children's services - including care placements for vulnerable children and foster care - accounts for almost half of the projected overspend.

Derbyshire County Council has seen a quarter increase in children in their care since March 2020

The County Councils Network, which represents some of England's largest local authorities, surveyed its members and found one in 10 are not sure they can balance their budgets in this financial year.

The BBC has contacted dozens of councils - at both district and county level and led by all parties - that have previously been reported to be facing financial pressures or have high debt loads.

All were confident of balancing their budgets and avoiding a Section 114 notice, which means the council is effectively bankrupt and cannot commit to any new spending other than for essential services required by law.

Some councils told the BBC their finances are in good shape - but others said they are facing intense pressure on their budgets and making difficult decisions on spending.

The Royal Borough of Windsor and Maidenhead said it was introducing "emergency controls of non-essential spending", while Hampshire County Council said its budget was "stretched to breaking point".

'Act now'

Stoke-on-Trent City Council said that without an overhaul in funding it would "not be able to sustain services", while Coventry City Council said it was facing a "devastating" financial crisis and that "local government stands on the precipice of financial disaster".

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Barry Lewis, vice-chairman of the County Councils Network, said: "Last year the chancellor stepped in with much-needed additional resources for adult social care.

"We now need the same priority to be given to vulnerable children, providing emergency funding this year and next."

He said Birmingham's recent financial difficulties - which led to it issuing a Section 114 notice - were "undoubtedly made worse by the council's performance and governance".

But he added: "Unless we act now, this analysis shows that other well-managed councils are running out of road to prevent insolvency."

The organisation said its members, which cover almost 27 million people in England, had already identified more than £2bn of "challenging" spending cuts over the next three years.

But a legal obligation to provide certain services such as care for adults and children for which demand and costs are "spiralling" meant there was little "wriggle room" to bring down costs further.

The survey of its 41 members found one in 10 were not sure they could balance the books this financial year, with that number rising to six in 10 in two years' time.

'Tough questions'

Councils have been raising concern about financial pressures for some time, but across the sector there are increasing warnings that the system is becoming unsustainable.

Earlier this month, the Local Government Association wrote to Chancellor Jeremy Hunt, outlining a £4bn funding gap over the next two years.

The District Councils Network, which represents hundreds of smaller authorities, said "cherished local services", including those which support vulnerable people, would disappear in a "growing financial crisis".

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Jonathan Carr-West, chief executive of the Local Government Information Unit think tank, said: "Council finances are in a really precarious position. We've seen this over more than a decade.

"There have been some well-publicised failures in places like Birmingham, Thurrock, Slough and Woking, but our research shows even if councils haven't got to the point where they're issuing Section 114 notices saying they can't balance the books, even the councils that aren't there yet are very anxious that they're on that pathway.

"We need to ask tough questions about governance and decision-making, but we've also seen the overall precarity of council finances has meant that where mistakes are made there's no resilience to cope with them and I think we're seeing more and more well-run councils telling us they're moving much closer to the edge."

A spokesperson for the Department for Levelling Up, Housing and Communities said: "We continue to monitor pressures on all councils and we stand ready to talk to any council that is concerned about its financial position.

"Councils are ultimately responsible for the management of their own finances, but the government has been clear that they should not take excessive risk with taxpayers' money. We have established the Office for Local Government to improve the accountability for performance across the sector."

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