26 UK Councils at Risk of Bankruptcy, Local Government Group Warns

A leading local government group has warned that at least 26 councils in some of the most deprived areas of Britain are at risk of effective bankruptcy within the next two years. The group, which wishes to remain unnamed, expressed concerns that many of these authorities simply have “nothing left”.

Over the past two years, Britain’s local government network has experienced a series of financial collapses, beginning with Slough and followed by Croydon, Thurrock, and more recently Woking. Woking announced a deficit of £1.2 billion in June after a risky investment spree.

A survey conducted by the Special Interest Group of Municipal Authorities (Sigoma) revealed that 14 of its members are considering issuing a notice of their inability to balance their annual budget for 2023-24, while a further nine said they may have to declare bankruptcy next year. Sigoma called on the government to provide additional funding to support struggling local authorities.

The threat of bankruptcies is attributed to the depletion of cash reserves, typically used to fill gaps in budgets. Rising demand for children’s social care services, along with inflation costs and wage increases, have been cited as significant factors contributing to the financial pressures faced by local authorities. They have warned that an impending increase in borrowing costs will further exacerbate the situation.

According to Sigoma, at least 12 other councils not part of the group are also contemplating issuing a section 114 notice, which declares an inability to balance their books, in 2023-24.

Sir Stephen Houghton, the chair of Sigoma, emphasized the urgent need for the government to recognize inflationary pressures and provide additional funding to cover pay increases for local authorities. Houghton called for clarity on the timing of local government funding reforms.

Some recent bankruptcies were triggered by financial scandals, such as Woking’s disastrous property investment binge and Thurrock’s borrowing spree. Slough and Croydon, both under Labour control, also faced severe budget deficits.

The government responded by stating that local authorities are responsible for managing their own finances and should avoid taking excessive risks with taxpayers’ money. They mentioned measures such as the Office for Local Government to improve accountability and a one-off funding guarantee to ensure a minimum 3% increase in spending power for each council. Additionally, approximately £2 billion in grants for social care is being provided.