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12 September 2018updated 03 Sep 2021 11:49am

Why are councils collapsing?

Everything you need to know about the local government funding crisis.

By Anoosh Chakelian

Somerset County Council has unanimously approved £15m of major cuts today, following warnings of bankruptcy earlier this year.

Last month, East Sussex County Council announced that a cash shortfall was forcing it to cut its services down to a “core offer”.

After being effectively declared bankrupt in February, Northamptonshire County Council voted to scrap itself two weeks ago. Its huge funding gap means it can now only afford to attempt to fulfil its legal requirements to vulnerable people in terms of service provision – otherwise known as doing the “bare minimum”.

The Bureau for Investigative Journalism’s ongoing “Local Power” investigation identifies Norfolk, Lancashire and Surrey County Councils as local authorities on the brink of financial crisis that could follow Northamptonshire.

Across the political spectrum – from shadow communities and local government secretary Andrew Gwynne MP to Brexiteer Tory MP for Northampton South Andrew Lewer – a consensus is forming that local government funding is unsustainable and Northamptonshire should be a wake-up call to ministers.

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But with no sign of extra funding on its way from central government, and the age of austerity imposed in 2010 by David Cameron and George Osborne continuing in all but name, warnings appear to be going unheeded.

So what’s going on? Why are our councils collapsing and what is the government doing about it?

Why did Northamptonshire County Council collapse?

Ask government ministers and they’ll say Northamptonshire County Council’s financial problems are entirely of their own making. And it’s true that this local authority has been uniquely mismanaged for years – out-of-control spending, poor budgeting, overzealous yet poorly managed outsourcing and stubbornly frozen council tax all contributed to its downfall.

However, simply focusing on Northamptonshire as an anomalous case ignores the funding gap and lack of reform to local government funding structures by central government.

Or, as Northampton South MP Andrew Lewer told me, breaking from the government and his fellow Northamptonshire MPs’ script:

“Local mismanagement had indeed brought this situation to pass in Northamponshire now. But, it was the local mismanagement that’s brought this situation to pass in Northamptonshire now, not ever, in that even some quite well-run county councils will be hitting this sort of situation in two or three years’ time.”

What is a county council?

There are different types of local government structures in England. County councils are part of what’s known as a “two-tier” system – in areas with a two-tier system, you have one county council (the “upper tier”, which covers the whole county and delivers most of the public services) and several smaller “lower tier” district councils (these can also be called borough and city councils, if they represent boroughs or cities).

The other system is unitary – where just one level of local government governs an area (usually cities, large towns and some of the smaller counties). These can be known as city councils, borough councils, county councils, district councils, metropolitan district councils, metropolitan borough councils, metropolitan city councils.

Every London borough is run by a unitary authority. The Greater London Authority is a separate authority that provides London-wide government and shares responsibility of certain services with the boroughs.

In Scotland, Wales and Northern Ireland, all the local authorities are unitary. Though in some parts of England, Scotland and Wales there is a smaller layer of local government known as parish, town or community councils.

Generally, the majority of county councils are Tory-run and the majority of unitary authorities (including metropolitan borough councils) are Labour-run. But you can see the precise political make-up of councils here.

There are 418 councils in the UK – 27 county councils, 201 district councils, and 125 unitary councils.

Are they all vulnerable to collapse?

In its March report, the National Audit Office found local authorities have had a 49.1 per cent real-terms reduction in government funding from 2010/11 to 2017/18. It revealed that one in ten local authorities could run out of reserves (or “rainy day funds”, as Public Accounts Committee chair Meg Hillier puts it) within the next three years, after dipping into these funds to cover spending.

County councils face funding pressures amounting to £3.2bn over the next two years alone. A County Councils Network survey finds only one-third of council leaders are confident they will be able to deliver a balanced budget in the year 2020/21, without an extra cash injection from the government.

County councils are particularly hard done by. Their core government funding is decreasing faster than other types of councils, expecting to fall 93 per cent by 2020. They only receive an average of £249 per head for key services, compared with inner London authorities’ £550.

But cities are suffering too. Research for our sister publication, CityMetric, found huge funding gaps in cities across the UK, with Manchester City Council due to eliminate a £60m gap by reducing its adult social care budget, Liverpool identifying a £90.3m gap that has to be filled with more cuts, and Birmingham looking to cost-cut to the tune of £123m by 2022 (its financial report warned that the “Birmingham City Council of the future will look very different from the one we had before austerity began”).

Last July, Leeds City Council (which projects a £30.5m spending gap between 2019 and 2021) ominously stated: “At this stage it has not been possible to identify sufficient savings or income generation opportunities with which to entirely close the gap in the Council’s finances over the next three years.”

But at the moment, the counties have been the first to start stripping their services down to the bare minimum required by law.

What are councils legally required to deliver?

Councils have statutory duties to their local residents – over a thousand functions that they are legally required to carry out. These are the last to be cut when money’s tight, and what are referred to as a “core offer” or the “bare minimum”.

One of their main legal duties is adult social care. Ie. Making sure older people or people who have disabilities or other conditions are supported in their daily lives. Councils can charge people for this care unless their income is below a certain level.

Another major requirement is to protect children in need of support – whether that’s due to disability, low income or abuse. There are around 200 legal obligations to children, including class size limits and providing enough school places, etc.

Councils must provide people at risk of homelessness with free advice, and accommodation for homeless people deemed to have a “priority need” (the list is here).

Other legal functions include collecting bins (though there’s nothing in the law that says how often they should do this, which is why you’ll probably find your once weekly collections are less frequent now), maintaining local roads, actively promoting public health, and maintaining a “comprehensive and effective” library service.

Councils are also legally required to balance their books.

Why are councils’ budgets so tight?

Austerity is a big part of it. Since 2010, their money’s been squeezed by lack of funding from central government. The Local Government Association says councils will have suffered a cut in core funding since 2010 of nearly £16bn – that’s a loss of 60p in every pound.

Another reason is the rising cost of adult social care, due to the ageing population. A joint select committee inquiry into long-term funding of adult social care reported in June the rising costs and demand pressure from increasing life expectancy: “The population is ageing and adults with long-term health conditions and disabilities are living longer.”

Real-terms spending on adult social care has fallen by 5.8 per cent since 2010, and English councils are expected to cut nearly five per cent of the total budget in 2018/19 thanks to austerity. This is at the same time as rising demand: the number of people in need of care aged 65 and over increased by 14.3 per cent from 2010-17, and the number of adults with learning disabilities rose by around 20 per cent in 2009-14.

Is the government doing anything about it?

The Department for Housing, Community and Local Government told the BBC that £90.7bn will be provided to councils over the next two years, on top of their power to earn extra through retaining a more generous share of business rates.

But the current central government funding, supplemented by short-term cash injections, isn’t sustainable for councils.

As the head of the National Audit Office, Amyas Morse, said in March: “Current funding for local authorities is characterised by one-off and short-term fixes, many of which come with centrally driven conditions.”

And the County Councils Network is calling on the government to come up with a new sustainable funding settlement.

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