Economy and Infrastructure

‘Worst is yet to come’: Councils fear inability to balance books despite legal duty to do so

Despite being legally bound to do so, councils fear that they will be unable to deliver balanced budgets in the coming years if the government fails to provide much-needed extra funding ahead of the Spending Review.

Research carried out by the County Councils Network (CCN) found that almost 20% of council leaders are not confident that they will be able to balance the books in 2019-20 without more money, whilst 19% remained ‘neutral’ on this.

Confidence in the future is also at risk due to a lack of detail on long-term funding plans beyond 2020-21. Less than one-third of councils are certain that they will be able to deliver a balanced budget that year.

Unlike the NHS, local government must legally deliver a balanced budget, but this has proved to be a growing struggle for authorities. Northamptonshire County Council, for example, recently had to welcome in government commissioners to help straighten its finances after it effectively declared bankruptcy earlier this year. It has now managed to balance its books, but all its cash reserves are empty as a result.

Another county council, Somerset, recently called on Whitehall to fix the “broken” local government funding system, but rejected claims that it was going down the same path as Northamptonshire. Similarly, the country’s biggest council, Birmingham City, revealed it would have to make mammoth cuts this year to navigate turbulent times ahead.

And last weekend, Torbay Council decided that its chief executive will review all options for local government reorganisation – including the possibility of abandoning its unitary status and reverting to a district council – after the mayor revealed that the authority was completely out of pocket.

County councils are today calling on the Treasury to inject more money into local government next year ahead of the chancellor’s Spending Review, arguing that their regions will face funding pressures of more than £3bn over the next two years alone – almost £2bn of which are due to demand-led costs “out of their control.” The leaders of these authorities have claimed that they cannot wait until next year and warned that “the worst is yet to come” if the government doesn’t act now.

CCN members are using Theresa May’s recent £20bn NHS pledge to reinforce their argument for new cash from the Treasury to prevent “severe service closures and potential unrest amongst rural MPs.”

This year, council tax increases will only meet 36% of the budget gap, with savings of over £700m expected to deliver 41%. Local authorities currently predict that they will have to dip into reserves by up to £200m to balance their budgets in the coming months.

While the government has provided last-minute emergency cash and tax flexibilities on the eve of councils finalising their budgets in February, the CCN argued that “such a ‘hand to mouth’ approach” is not sustainable. A similar situation will inevitably arise this year, counties said, so the government must start preparations now.

Cllr Nick Rushton, CCN finance spokesman and leader of Leicestershire County Council, said his authority has managed to save £200m since 2010 by planning ahead, reshaping services, taking tough decisions, embracing innovation and generating income, but services are now “cut to the bone” and they have “reached a tipping point.”

“A long-term funding shake-up is long overdue – and a short-term cash injection is required so councils can keep their heads above water. Without extra money, the consequences could be dire,” he explained. “The government is aware that some councils are already teetering on the edge. And the stark reality is they cannot wait for the comprehensive Spending Review.”