England’s largest councils face overspending their budgets by over £600 million this year, with one in ten councils at risk of effective bankruptcy, new analysis showed.
The combination of inflationary pressures, elevating costs, and the increased demand for services led to forecasts of budget overspend by £639 million this year.
This is an average of £16 million per council.
The survey was conducted by the County Councils Network (CCN), covering councils for half of England’s population. It indicated that councils were “facing down the barrel of a £4 billion funding black hole,” over the next three years.
One in ten of “well-managed” councils were unsure whether or not they can balance their budget this year. Councils are prepared to make over £2 billion “challenging” savings and service cuts up to 2026 to prevent bankruptcy.
“But after a decade of continuous cutbacks, the scale of reductions and use of reserves needed to fill the funding shortfall is simply unsustainable,” said vice chair of CCN, Barry Lewis.
The warning by local government leaders comes after a number of councils in England had to issue Section 114 Notices.
Labour-run and the largest local authority in the UK, the council failed to settle a £760 million bill on equal pay claims and a flawed and costly IT system.
Responding to the appointment of commissioners in Birmingham, the shadow levelling up secretary Angela Rayner MP noted that since the Conservatives took over in 2010, local authorities across the country have been struggling.
Costly Services
Birmingham’s financial difficulties and issuing of a Section 114 were “undoubted made worse” by the council’s performance and governance, according to Mr. Lewis.He warned that unless the government “acts now” to support local authorities, other well-managed councils will run out of road to prevent insolvency.
The CCN analysis pointed to the sectors where councils are required to spend more than expected. One of them was provision of care for children. An acute rise in costs of placing children in care means that around £319 million of overspend is attributable to this service.
The proportion of the total overspend for the adult social care service was 25 percent or £179 million. Education and transport sectors accounted for 22 percent or £154 million.
Mr. Lewis said that the number of vulnerable children requiring care has risen dramatically post-pandemic. At the same time, high inflation and a “broken provider market in statutory care placements” meant councils faced spiralling fees.
“Last year the Chancellor stepped in with much needed additional resources for adult social care. We now need the same priority to be given to vulnerable children, providing emergency funding this year and next,” the CCN leader said.
Local authorities, including Birmingham and Tower Hamlets, are working with the Department of Education to design the training programme
As “historic in-year pressures are worsening” for local authorities, according to Mr. Lewis, some of the councils have sounded the alarm bells on their finances.
Derbyshire County Council expect to overspend their budget by £46 million, based on the first quarter of 2023/2024 projections.
For Shropshire Council it is £37.6 million, while the Hertfordshire County Council reported a £16.4 million in expected overspending.
