Some local authorities may be forced to declare technical insolvency in the next two years, experts have said, as councils struggle to weather the financial pressures caused by budget cuts and growing demand for social care.
A survey of councils in England and Wales by the Local Government Information Unit (LGIU) thinktank found that three-quarters had little or no confidence in the sustainability of local government finances and more than one in 10 believed they were in danger of failing to meet legal requirements to deliver core services.
The nervousness about finances was even more pronounced among councils with responsibility for delivering social care. They were much more likely to state that the financial squeeze would see a deterioration in the quality of services this year and that cuts would put them in breach of their statutory duties.
More than 40% of all councils anticipated making “cuts in frontline services, which will be evident to the public” – rising to 71% among social care authorities. More than half considered adult social care to be the most pressing issue, a figure that increases to 80% among social care authorities.
Jonathan Carr-West, the chief executive of the LGIU, said council finances were at breaking point: “Council budgets are stretched beyond measure. Increased demand coupled with the management of nearly a decade of cuts from the government has left local government at breaking point. Everyone is expecting someone to fail. They are just hoping it won’t be them.
“Councils have no faith in the system. They are patching together their finances by putting up council tax, drawing down reserves and increasing charges. Increasingly they worry that they will not be able to provide the vital services that people rely on.”
Almost all councils are preparing to raise council tax and increase or introduce charges in areas such as car parking, planning applications and garden waste removal, while two-thirds are dipping into reserves to balance the books.
The days when local authorities considered it a point of honour to cut or freeze council tax each year are over, the survey suggests. Five years ago, 100% of councils who responded to the survey said they were not raising or reducing council tax. This year, 94% say they will increase it; just 6% will freeze it.
Councils showed little confidence that new measures introduced by the government to alleviate financial pressures would help. Although most plan to raise extra money for social care through a council tax precept, only a handful believe this will close the funding gap. There was no consensus that plans for councils to keep a greater share of local business rates would help: half thought they would lose out as a result of the change.
Sean Nolan, the director of local government and policing at the Chartered Institute of Public Finance and Accountancy, said: “[The financial resilience of councils] is a real concern. We are into the sixth or seventh year of austerity. Councils have been really imaginative to balance the books so far but some councils are getting close to the tipping point with little by way of reserves to help cover the problem.
“Over the next 12 to 24 months, in those few cases, we could start to see headlines describing spending freezes, major job cuts and drastic cuts in service.”
Although councils cannot go bankrupt – there is an expectation that central government would intervene to prop up a failing authority – there are fears that a handful will become technically insolvent because they have insufficient money to deliver core services and have exhausted their financial reserves.
A spokesman for the Department for Communities and Local Government said: “Our historic four-year funding settlement gives local authorities the certainty they need to plan ahead, with almost £200bn available to provide the services that local people most value.
“We have also announced an additional £900m for social care, meaning councils will have £7.6bn of dedicated funding to spend over the four years.”
This week, Surrey county council abandoned plans for a referendum on a proposed 15% council tax increase to pay for spiralling social care costs. It was reported subsequently that ministers had privately offered Surrey a place on a trial scheme to fund social care by allowing councils to retain business rates, a move Labour leader Jeremy Corbyn condemned as a “sweetheart deal” designed to kill off negative publicity surrounding the referendum.
There were 163 responses to the survey from 131 councils in England Wales, which was conducted in January by the LGIU and Municipal Journal. Of the 163 responses, 71 came from councils with social care responsibilities.
