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11 June 2020

Mayors warn of looming council bankruptcies

Regional leaders say that without increased support from central government, local authorities will be unable to pay for basic services.

By Jonny Ball

Labour mayors from across the country are warning that waves of local authorities are at risk of declaring effective bankruptcy in the coming weeks and months unless central government steps up financial assistance.

In March, Communities Secretary Robert Jenrick promised the government would do “‘whatever it takes” to help councils in the face of coronavirus, and that they could “spend what you need, and we’ll reimburse you”. Since then, however, the number of councils warning of so-called s114 bankruptcy notices being issued has ballooned. Local authority income has fallen rapidly as business rates, council tax, transport fares, car parking charges, as well as revenue from commercial investments, have dried up.

Speaking to The Guardian, Andy Burnham, mayor of Greater Manchester, said that “recovery will have to be built from the bottom up and councils will be crucial to this. The poorest communities have been hit hardest by the health crisis and now could be hit harder still by the economic crisis.”

This week, the OECD warned that Britain was likely to suffer the worst economic damage from Covid-19, with a 11.5 per cent economic contraction that slightly outstripped the projected falls in France, Italy, Spain and Germany. At the start of May, the Bank of England forecast the worst recession in three centuries, with a 30 drop in output, a more severe fall than in the United States during the Great Depression or Greece in the post-2008 recession.

“Support is needed now to stop the 2020s being as bad as the 1980s in the north”, Burnham said. “Councils will be at the heart of the recovery and government needs to fund them properly.”

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Since 2010, austerity imposed on local government has seen the central government grant of many councils fall by as much as two-thirds. This week, the New Statesman detailed how councils across the country risked being tipped over a financial cliff edge by coronavirus after a devastating decade of cuts.

“This is because local government finance was so fragile in the first place,” said Sharon Taylor, leader of Stevenage Borough Council. “We were all living on a wing and a prayer even before Covid came along, and after ten years of austerity, ten years of cutting away at these services that people are now realising are essential.”

Without a massively increased financial offering from government, Manchester City Council plans to set an emergency budget with heavy cuts to services in July. The city is facing an estimated deficit of £133m for 2020-21. Increased coronavirus costs and plummeting revenue resulted in a £167m loss, partly offset by the government’s £33.7m emergency cash injection. Manchester’s reported shortfall includes lost income from investments in commercial property, including part ownership of a struggling Manchester Airport.

Last month, the Municipal Journal reported that there would be “no bailout for commercial investments”. Jenrick has criticised what he calls “unwise investments” by local authorities, which many have used to supplement their continually dwindling income from central government grants.

Liverpool’s £78m coronavirus deficit does not include the council’s losses from the authority’s extensive commercial properties, which include the Pullman Hotel, the Cunard Building and Everton Football Club’s Finch Farm training ground. The city council of Merseyside has warned it is on the edge of bankruptcy.

Similarly, the Yorkshire Post has reported that council chief executives across the region are unlikely to be able to fulfill their legal obligation to balance their books in the coming months, unless further support is forthcoming. Dan Jarvis, the mayor of Sheffield city region pointed out the contradiction between the Prime Minister’s promises that there would be “no return to austerity”, and the apparent cuts that will be necessary in communities the government wants to “level up”.

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