Rise in bailout requests ‘likely’ as councils warn of bankruptcy threat

The perilous state of council finances means one in four local authorities could be forced to request emergency support from the Government to avoid effective bankruptcy over the next two years, according to research.

A survey of council chief executives suggests projected funding shortfalls, which are expected to total more than £2 billion next year, will threaten the viability of many councils in England without measures in the Budget to ensure stability and protect vital services.

A total of 18 councils were given exceptional financial support (EFS) from the Government in February to ensure they could meet their legal duty to balance their books in 2024-25.

But this unprecedented number could rise steeply over the coming years in the absence of an improved settlement, with the survey by the Local Government Association (LGA) finding one in four councils are “likely” to apply for support in 2025-26 or 2026-27 in this scenario.

The result suggests up to 79 of England’s 317 local authorities could be forced to request a bailout.

Among upper-tier councils with social care responsibilities, the proportion who said it was likely they would apply for support within the timeframe increased to 44%, suggesting up to 66 of these councils could require help.

When questioned on whether they had considered requesting Government support this year, one in 10 of all council chiefs said they had.

Support through the EFS framework is usually provided in the form of a “capitalisation direction” which permits councils to use capital funds raised through borrowing, or the sale of assets such as buildings, to fund day-to-day services.

However, the LGA warned that this temporary financial relief creates a risk that EFS could load struggling councils with further debt and costs in the future, and has the potential to threaten future capital programmes.

Ahead of the LGA’s annual conference in Harrogate this week, the body’s Labour chairwoman Louise Gittins described the current financial crisis as “extraordinary”.

Housing Secretary Angela Rayner and local government minister Jim McMahon are due to address delegates at the event.

Ms Gittens (pictured) said: “Councils are the backbone of communities.

“Every day they strive to protect vulnerable children and families, support our older or disabled loved ones to live independent lives, keep our streets clean and pothole-free and build affordable homes but this is becoming increasingly difficult.

“The unprecedented emergency support given to councils this year reveals the extraordinary funding emergency facing local government.

“As our survey shows, many more councils are being pushed into a precarious financial position.

“This is not just about numbers on a spreadsheet.

“Budget cuts needed to plug growing funding gaps will affect the most vulnerable members of society and the services our communities rely on every day.

“The autumn Budget must provide councils with the financial stability they need to protect the services our communities rely on every day.”

Survey responses from upper-tier councils showed children’s and adult social care were the biggest concern, followed by special education needs support, school transport and homelessness.

For district councils in country areas, the biggest pressure was homelessness, which was highlighted by 85% of respondents, followed closely by waste services (82%).

The survey also revealed the community services which are most vulnerable to cuts next year.

Some two-thirds of councils said parks and green spaces will be affected, while 62% highlighted sport services.

In addition nearly eight in 10 councils said support for disabled adults and older people were likely to face cutbacks, while two-thirds said the same about services for children and families.

Chancellor Rachel Reeves is considering a range of options to generate tax revenue as she seeks to stabilise public finances.

The Treasury is understood to have identified a £40 billion ongoing annual funding gap for day-to-day spending, which includes any enduring impact of the £22 billion gap this year.

The Government has been approached for comment.

Copyright (c) PA Media Ltd. 2024, All Rights Reserved. Picture (c) Youtube.