Six more councils fighting bankruptcy, including Bradford, Kent and Devon, local government leaders warn
Six more local councils are at risk of going bust before the next general election, leading local government sources have told i.
Bradford, Devon, Guildford, Hastings, Kent and Southampton have been named as being in danger.
Birmingham City Council – the largest local authority in Europe – declared itself effectively bankrupt last week after being hit by a £760m bill to settle historic equal pay claims.
So squeezed are local authority finances that several more face the prospect of following it, and i has been told that there are at least six that could do so within a year.
“We haven’t seen the end of councils going under,” said a leading local government figure. “There’s at least half a dozen that could be issuing section 114 notices in the next year, with some doing so within months unless they can turn things around.”
Section 114 notices are issued by councils, as Birmingham did last week, when they are effectively bankrupt. It means no new expenditure is permitted, with the exception of statutory services including safeguarding vulnerable people.
The six councils most likely to be next in issuing a section 114 notice, according to the local government source, are Bradford, Devon, Guildford, Hastings, Kent and Southampton.
A recent report from Devon County Council’s legal and finance directors described the Tory-run council’s position as “very challenging” and identified “a number of fundamental issues” prompting an “urgent need” for a high-priority review.
The report warned that the council faced a “material threat of a section 114 notice” because of its growing cumulative overspend on special educational needs and disability services, which has risen to nearly £130m and is projected to increase to £153m by March next year – more than the county council has in its financial reserves.
Following the collapse of Labour-run Birmingham, East Devon Tory MP Simon Jupp said: “If Labour can’t run a council, they can’t be trusted with our country.”
Claire Wright, his independent rival for the constituency at the December 2019, responded: “Imagine our MP’s shock when he realises Conservative-run Devon County Council is on the verge of bankruptcy.”
Devon County Council did not respond to i’s request for comment.
In Kent, where 61 of the 81 county councillors are Conservatives, the authority’s external auditor has warned that it faces a potential 114 notice unless it makes savings of £86m by the end of its current financial year next March.
The report from Grant Thornton said Kent County Council was in a “perilous financial position” due to inflation and a growing demand for its services.
Kent council did not respond to i’s request for comment.
In Guildford, the borough council’s chief finance officer has warned that it could face a section 114 notice because of rising interest rates which are having an impact on the authority’s payments on its £300m debt. The council was controlled by the Conservatives until 2019. The Liberal Democrats won a majority in May.
In a joint statement, finance director Peter Vickers and Guildford’s chief executive Tom Horwood said that due to the council’s debt financing concerns, “a section 114 notice will be reconsidered in time for the October council meeting”.
A spokeswoman for Guildford Borough Council said: “We are working at pace and have already identified significant savings. Our Financial Recovery Plan has been supported by councillors and will be going for formal approval soon. We’re working hard to avoid the need for a Section 114 notice.”
Of the remaining three councils, Bradford and Southampton are controlled by Labour, while no party in Hastings has overall control but Labour has just under half of the borough’s councillors.
Bradford Council has warned its reserves are “close to exhaustion” after £30m was required to balance the budget in current financial year.
The council is also forecast to overspend its £453m net revenue budget for 2023-24 by £13.8m, according to early estimates.
In a report to councillors, Bradford’s director of finance Christopher Kinsella said: “Many councils are experiencing similar pressures across the country as a result of systemic funding issues, and there are numerous councils that are nearing s114 notices. This is something that is without historic precedent and is reflective of a sector in dire need of support.”
Bradford Council did not respond to i’s request for comment.
In Hastings, the rise in a requirement for temporary accommodation has pushed the council into an “incredibly precarious” financial position.
The authority is experiencing “spiralling costs” in homelessness and reported an overspend of £2.4m in this area for financial year 2022/23.
Simon Jones, deputy chief finance officer, warned that if the position “is not immediately addressed” and the costs continue to grow at the current rate for temporary accommodation, the council “will have no option other than to issue a section 114 notice”.
Paul Barnett, leader of Hastings Borough Council, told i: “The ever-increasing costs of temporary accommodation means that to provide housing for everyone we have a duty to house has increased from £730,000 in 2019 to £4.5m for 2022/23 – a rise of more than 400 per cent – and it is predicted to rise to £5.6m for 2023/24.
“Without the cost of temporary accommodation and housing, the council’s budget for 2022/23 shows an underspend of £1m.
“Because of the huge increases in housing costs, there are going to be difficult decisions that have to be made across the whole council as we continue to try to balance our budget.”
In Southampton, the city council has commenced “informal discussions” with the government over its challenging financial situation.
The council was forced to draw down £11.38m from reserves to balance the authority’s year-end deficit the year to the end of last March.
A report presented to councillors warned that a failure to take actions during the current financial year “would lead to a large forecast overspend, which would mean the council being financially unsustainable and the issuing of a S114 notice”.
Southampton council did not respond to i’s request for comment.
The Local Government Association (LGA) has estimated that local authorities have been hit by a £15bn, or 60 per cent, real-terms reduction to core government funding between 2010 and 2020.
Shaun Davies, chairman of the LGA, said: “Councils in England face a funding gap of almost £3bn over the next two years just to keep services standing still.
“Councils’ ability to mitigate these stark pressures are being continuously hampered by one-year funding settlements, one-off funding pots and uncertainty due to repeated delays to funding reforms.
“The Government needs to come up with a long-term plan to sufficiently fund local services. This must include greater funding certainty for councils through multi-year settlements and more clarity on financial reform so they can plan effectively.”
The Department for Levelling Up, Housing, and Communities did not respond to a request for comment.
