In Depth

Could a second wave of coronavirus bankrupt your local council?

Local authorities across the UK say they are out of money and running on ‘fresh air’

The coronavirus pandemic has triggered the closures of some of the UK’s biggest institutions, from historic football clubs to world-leading universities.

And the threat of financial ruin is also looming over a growing number of local councils, with many warning that a second wave of Covid-19 could leave them bankrupt and unable to deliver basic services.

Why are councils struggling?

The County Councils Network (CCN), which acts for 39 of England’s biggest local authorities, has warned the government that the impact of the coronavirus outbreak could leave its members with a multibillion-pound budget shortfall.

The cross-party organisation says that a second wave of infections may trigger a spate of insolvencies and force a fresh round of emergency cuts to local services. 

The financial impact of the health crisis “may lead to a significant number of councils being forced to consider whether a S114 notice [a statement of effective bankruptcy] is required”, a CCN-commissioned report has concluded.

Even without a resurgence of the virus, council face “large-scale reductions in services this year” unless central government provides a long-term bailout plan, reports The Guardian.

Indeed, “councils all over the country are on the brink of effective bankruptcy (local authorities cannot technically go bankrupt, and must keep providing certain mandated services that are their statutory duty)”, says the New Statesman’s Anoosh Chakelian.

The government handed an additional £3.2bn of pandemic emergency funding to local authorities in across March and April, but councils say that the money has now run out and that many are running on “fresh air”.

North Devon Council’s head of resources, Jon Triggs, told Chakelian that “unless we get some certainty around income levels recovering or certainty of any additional help from the government in terms of this year’s budget or future years’ budgets”, the authority may be among those “faced with having to look a Section 114 notice”.

Asked when cuts would be necessary, Triggs added: “We’re probably talking a few months.”

What do local authorities want?

The CNN has called for urgent short-term funding to help councils cope with the impacts of rising social care costs and falling council tax income. 

In the long term, councils wants a government-backed “income guarantee” to underpin their budgets over the next five years.

Councillor Carl Les, a CNN spokesperson and the leader of North Yorkshire County Council, told the BBC that local authorities were “grappling with increased cost pressures”. 

“We want to work with government to develop a comprehensive plan to support councils over the coming months and years,” he said.

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What next?

At least 18 local authorities are already considering issuing a 114 notice, which would result in severe spending restrictions and cuts to services such as parks, libraries and museums, according to The Times.

But council bosses are hoping that an emergency funding deal can be secured by the CCN, which “is said to carry weight in Whitehall because its members provide local council services in about two-thirds of all Tory-held constituencies, including in home counties heartlands such as Kent, Surrey, Buckinghamshire and Hampshire”, The Guardian reports.

Housing and local government minister Simon Clarke told MPs this week that he was “working closely with cabinet colleagues on a comprehensive plan to ensure councils’ financial sustainability over the financial year ahead”.

Asked by Labour MP Kate Osamor whether councils should prepare for a second wave of austerity cuts in order to balance their budgets, Clarke replied: “The answer to that question is unequivocally no, they should not.”

Despite such reassurances, some councils have begun planning for emergency cuts to avoid bankruptcy. Wiltshire County Council said last week that a £50m shortfall caused by extra pandemic costs had put it at “significant risk and threat” of collapse, while Luton Borough Council may have to make of £22m of cuts.

Warning of similar scenarios across the country, Richard Watts, chair of the LGA’s resources board, said: “The secretary of state promised that councils will get all the resources they need to cope with this pandemic.

“This must include the full cost to councils of meeting Covid-19 pressures and of keeping services running normally, and compensation for all lost income. Without this, councils face an existential crisis.”

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