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A record 30 local authorities in England have been authorized to borrow funds as a means to avert bankruptcy, amid strong recommendations from government officials to refrain from selling off significant local assets, including historical sites, parks, and community gardens.
These councils, grappling with severe financial difficulties, have received permission to collectively borrow £1.5 billion in order to cover substantial budget deficits exacerbated by chronic underfunding and increasing demands for social services.
Specifically, three councils—Birmingham, Bradford, and Windsor and Maidenhead—are permitted to borrow in excess of £100 million each in the current fiscal year. Additionally, they are allowed to implement substantial council tax increases, which could reach up to 10%.
Six councils currently in special measures due to previous bankruptcy declarations—namely Birmingham, Croydon, Nottingham, Slough, Thurrock, and Woking—will continue to receive specialized financial assistance.
The exceptional financial support (EFS) packages allow these councils to obtain capital loans aimed at funding operational expenditures, under the assumption that they will eventually repay the debt by selling assets and reducing services.
In a notable move, the government has established conditions that prevent councils receiving EFS from liquidating “community and heritage assets.” This decision arises from growing concerns that financially distressed councils might resort to selling cherished local parks, recreation areas, and cultural works.
First-time applicants for the special borrowing program include Newham, Shropshire, Swindon, Trafford, West Berkshire, Wirral, Enfield, Halton, Barnet, Solihull, Worcestershire, and Worthing.
Interestingly, the count of London councils benefiting from EFS assistance has risen sharply from two to seven compared to last year. Claire Holland, who heads the London Councils group, expressed that the data indicates nearly a quarter of London boroughs could face grave financial troubles without emergency funding.
Jim McMahon, the local government minister, acknowledged the precarious budget situations faced by councils, reiterating the government’s commitment to restore financial stability within local governments. He emphasized the importance of collaboration with local leaders, aiming to foster a supportive rather than punitive relationship while enhancing public services.
A statement issued by the Ministry of Housing, Communities and Local Government highlighted that any reforms to council finances would require significant time, with potential risks for ongoing instability in the future.
Hampshire County Council’s recent request for EFS aid via a proposed 15% increase in council tax over the next two years was declined by government officials.
The dramatic 50% year-over-year increase in EFS applications illustrates the worsening fiscal conditions confronting councils throughout England, affecting both rural and urban regions indiscriminately, irrespective of their political affiliations.
Currently, the balance sheets of upper-tier councils do not accurately capture rising deficits related to special educational needs funding, which construction accounting regulations have temporarily obscured but are set to be revealed when those regulations change next year.
Since the introduction of EFS in 2021, the number of councils seeking this form of support has surged. Initially, only a few councils under financial duress from hazardous investments sought assistance after declaring effective bankruptcy.
Today, many of the councils receiving EFS support are seen as generally well-managed entities suffering from the prolonged consequences of structural underfunding resulting from austerity measures, rampant inflation, and escalating needs for adult social care, child welfare, and homelessness services.
Critics argue that the EFS funding model undermines proper financial accountability and represents merely a temporary solution that masks underlying insolvency by burdening councils with debt. There are concerns that without reform in the governance of local government finance, particularly with respect to council tax structures, ambitions for financial recovery may prove unattainable.
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www.theguardian.com