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Selling off assets won’t stop council bankruptcies

The government hopes someone else will deal with the problem of inadequate local authority funding.

By Samir Jeraj

On Saturday 6 January, Bloomberg reported that the UK government was considering loosening the rules on councils selling their assets. Such a move might enable local authorities to plug the gaps in their budgets in the short term, but it would do nothing to tackle the underlying problem in council finances.

New Statesman Spotlight’s council bankruptcies tracker is monitoring more than a dozen authorities at risk of not balancing their budgets, with six already having gone under. Organisations that represent councils, such as the County Council Network, the Local Government Association and the Special Interest Group of Municipal Authorities (Sigoma), have warned that many of their members are effectively bankrupt or are expected to issue a Section 114 notice in the next year.

Council finance is typically split into revenue and capital funding. Revenue is about the day-to-day costs of running a local government, paying staff, keeping the lights on and bins collected. Capital funding is about creating and/or buying (or selling) assets for the purpose of meeting local needs for public services, such as building a new school or swimming pool, commissioning public art, or purchasing land to facilitate a new development. Councils can use revenue money on capital projects – for example, a local authority can use surplus council tax money to replace the play equipment in a local park. But they cannot sell off that park and put the money into those “day-to-day” costs. They must spend any money made from selling “assets” on other capital projects.

The local government grant – councils’ main source of funding from central government – dropped 40 per cent in real terms from 2009-10 to 2019-20. Because of recent inflationary pressures, the LGA says, since 2010 councils have seen a 27 per cent real-terms cut in their spending power. The risk is that, without additional funding, councils will be forced to sell off their assets to buy a few extra years of functionality, meaning central government would not sort out the cause of local authority bankruptcies in the first place: that is, the rising cost of delivering social care, child protection and temporary housing – and the lack of adequate funding from government for those services.

We’ve been here before. In the 2010s, councils were encouraged to run down their financial reserves as the government cut their funding and restricted them from raising council tax, alongside reforms to business rates that gave councils a greater share of that income (great for some councils, but less great for local authorities with a smaller business-rates tax base). These measures postponed the need to really deal with the problem.

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Councils also sold off less productive assets, using the capital to invest in schemes that would generate income. These conditions contributed to some of the bad financial gambles that led councils in Thurrock (renewable energy), Woking (a shopping centre) and Birmingham (a new IT system) to recently issue section 114 notices – in effect, bankruptcy notices.

The politics also gets messy. In 2022 Bournemouth, Christchurch and Poole Council decided to sell some of its assets to fund a transformation programme under its “unity” alliance administration (which included all parties except the Conservatives). However, the opposition Tory councillors campaigned against the sale and won the next set of elections. The then-new Tory administration found there was no other option open to them but to sell the assets.

Selling off assets can also impact services and put local heritage at risk. Councils could cut the number of local libraries in order to sell the buildings, as happened in Greenwich in 2021. In 2014, Northamptonshire County Council sold off historical artefacts (before going bankrupt four years later and being abolished as a council), and in 2018 Hertfordshire County Council sold its collection of art. Theoretically, a council could sell the contents of its local museums and archives to top up its budget. But this surely only delivers short-term gain.

Easing up rules on the sale of assets seems cynical. After all, it is a short-term fix that would make the council funding crisis a problem for the next government to sort out. But at the heart of this issue are questions of what local government should be for: is it a mechanism for delivering an ever-narrower range of services? Or is it there to shape, preserve and champion an area and its people? Either way, no programme to rebalance the UK economy or reduce child poverty levels or move to net zero can work if local authorities continue going bankrupt. Whoever wins the next general election needs to come up with an answer to those questions.

[See also: “Red Wall” areas are at the epicentre of “broken Britain”]

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