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Councils are on the brink – but there’s no mea culpa from Michael Gove

With one in five local authorities saying they are likely to go bankrupt, the Levelling Up Secretary is shifting the blame.

By Jonny Ball

“Anyone can do the sums,” Clive Betts told Michael Gove during the Levelling Up Secretary’s latest grilling by the chair of the Levelling Up Committee – but if you are the senior cabinet minister in charge of local government, you might not want to.

The sorry state of council finances – the subject of yesterday’s committee session – makes for grim reading. Even the most competent of operators will struggle to talk away a sectoral crisis. One in five authorities that were surveyed by the non-partisan Local Government Association (LGA) say they are likely to go bankrupt. When New Statesman Spotlight polled more than 500 councillors last month, the figure was just shy of one in four.

Gove was once billed as “the polite assassin”, but he’s cultivated a reputation as a minister who gets things done. He’s won the admiration even of progressive types like Andy Burnham and expert New Statesman Spotlight contributors, who see him as someone they can do business with. And he is a select committee pro: prepped, polite, and with a clear grasp of the brief. Now, however, this polish only serves to defend a truly dismal record on council finances.

“Local government faces significant funding pressures,” he conceded. It could hardly be denied. Grants to local authorities fell by 40 per cent in the first ten years of this Conservative government. During the pandemic, spending on local authorities was slightly restored, but the money the government allocated was still 21 per cent below its real-terms peak. Betts, a Labour MP, pointed out that the National Audit Office had actually estimated the average cut was higher, at 26 per cent. Did this have anything to do with the wave of bankruptcies across the sector?

“There has been a direct linkage between poor leadership and the subsequent issuance of a section 114 notice,” Gove claimed, alluding to the instrument used by councils to declare they are effectively bankrupt. There have indeed been incidences of poor management, and a whole host of bad investments when some councils tried their hand at commercial landlordism and the property market. But many of the ill-advised, speculative projects have been undertaken by fraught leaders looking to recoup some of the losses in central government grant income.

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Given the state of public finances, and an Autumn Statement that baked in departmental cuts for the next four years, would any of the more well-run, exemplary local authorities soon find themselves in financial difficulty as well? On this, Gove was bullish. The chair of the County Councils Network and the vice-president of the LGA had assured him that very morning that the “one in five” bankruptcy estimate was at the “top-ish” end of the scale.

So not quite the top then. This begs the question of what the actual top estimate is. One in four? One in three? If we prepare for around a third of councils going bankrupt then we can all raise a glass when only 50 or so declare a fiscal emergency because they’re unable to pay their staff, switch the street lights on, deliver social care, open schools, collect rubbish, repair roads, and keep libraries, parks and leisure centres open without outside intervention.

Betts shared his assessment of the two possible outcomes, as things stand. Local authorities will either have to implement “a whole further round of spending cuts, or massive council tax increases”. Ever the optimist, the Levelling Up Secretary said there were in fact other ways of improving the financial outlook, too: “Put the economy on a sound and long-term basis for growth.” But what, Betts asked, if we didn’t get the magical growth levels needed to finance a boost in spending? “You’re asking me to go down a road of economic forecasting,” Gove replied, “which is a dangerous one to go down.”

Forecasting is dangerous, especially if you’re a Tory MP, because all the forecasts say, more or less, that growth is sluggish or non-existent and you’re going to lose the election.

Birmingham, the country’s largest local authority, has already issued the dreaded section 114 notice, and was soon followed by the announcement from Nottingham that it couldn’t balance the books. Both of these authorities have had their fair share of governance issues, but there’s broad agreement that the fiscal squeeze is being felt among even the most frugal and efficient councils.

“It’s important to put into context some of the issues that are being raised,” Gove told the committee. There was Covid, Ukraine, global economic problems, et cetera, et cetera. Everything was to blame except the fact that the local government ministry had faced more cuts than almost any other department since 2010.

In fairness to the secretary of state, he’s probably feeling the squeeze as well. His levelling-up role now seems like it’s named for almost comic purposes: minister for making things better and fairer when everything is getting palpably worse. In February his department was barred from making any capital spending decisions without Treasury approval. With his wings clipped Gove can’t approve so much as a park bench or bus stop without permission from Jeremy Hunt’s bean-counters.

Gove is known as an effective administrator. He fancies himself as an intellectual leader, too, pondering the pathways of the post-Brexit “realignment”. He quotes the Italian Marxist Antonio Gramsci, he reportedly had a picture of Lenin on his office wall, and he even found time to visit the National Conservative conference earlier this year to talk about the return of the “nation-state” as an economic actor.

For all Gove’s nods to active government and pivots towards interventionism, the public sector still looks and feels as threadbare as ever. Nadia Whittome, a Nottingham MP and member of the Levelling Up Committee, put it to the Levelling Up Secretary that there simply wasn’t enough money in the adult social care system (by far the largest financial burden for most councils). “You could say that of so many areas,” he responded, perhaps unwittingly conceding that the local government sector isn’t the only example of state capacity being woefully depleted, or the public realm being consistently starved of long-term investment.

[Read more: Local councils are the victims, not the cause, of their poor finances]

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