English local government is broke. Nobody wants to fix it.

Three-quarters of council spending will be supporting the 3-5% of the population - adults and children - who are looked after in some way by the local council. An this isn’t enough.

English local government is broke. I am sure that everybody involved in our local councils knows this truth. As they begin preparing their financial statements ahead of the mad new year flurry of budget and council tax setting, the council leaders, chief executives and finance directors will be sucking their teeth wondering how to bridge the gap between the money the council needs to provide the services national government requires of it, and the money available from grants, income and taxes that are available to pay for those services.

“Many county councils and unitary authorities are “running out of road” to avoid insolvency as they grapple with high inflation, increases in children being taken into care, and massive bills for children’s homes, the County Councils Network (CCN) said.”

We can add to this problem with looking after children the ongoing challenges in providing an acceptable level of social care to the elderly and disabled. Plus the spiralling consequences of our housing crisis resulting in small councils spending ever more money on housing the homeless. 

But, while the problem gets reported, there is no sign of any response from national politicians to this crisis. The current Chancellor of the Exchequer rolls out the familiar Whitehall response by saying how much extra money they’ve given and a spokesman reminds us that the department responsible for local government sees it as ‘out of sight, out of mind’:

“Councils are ultimately responsible for the management of their own finances, but the government has been clear that they should not take excessive risk with taxpayers’ money. We have established the Office for Local Government to improve the accountability for performance across the sector.”

National government in Britain hates local government. This is not a new thing - I remember a briefing at Conservative Central Office back in the 1980s where we were regaled with the pointlessness and uselessness of local councils and local councillors and this was echoed in Margaret Thatcher’s favourite sitcom, Yes Minister. What Whitehall has wanted since the 1960s is a tidy collection of councils, ideally under the direction of the right sort of men rather than a hotch-potch of councillors. This was the purpose of the London Government Act of 1963, of the Redcliffe-Maud Report, and of the 1972 Local Government Act. We see this idea revisited again and again - by Blair’s reform of the committee system and advocacy for elected mayors, and in the new enthusiasm for massive unitary councils and sub-regional mayors.

Meanwhile, local government gradually lost any vestiges of independence as central government imposed more and more constraints on councils’ ability to act. This began with statutory direction of social services in 1970, continued with caps on the ability to raise finance, the removal of business rates from council control, and a series of new regulatory regimes covering every aspect of local services. The latest iteration of this central control system is the Office for Local Government with its passive-aggressive mission about accountability and performance.

Despite this history of interference in local government, national government - and national politicians - have nothing to say about the financial crisis that faces all upper tier authorities and many of the (remaining) district authorities. English local government is broke and Whitehall is ready to tell you that this is local government’s fault. Yet, as we see from the issues raised by struggling local councils - social care, looking after children and homelessness - the primary cause of the problem is relatively uncontrollable statutory entitlements to service. Councils cannot, at least in the short run, control how many old people they must provide for, how many children come into their care, and how many families arrive destitute at their doorstep needing a home.

So far only a few councils have pressing the panic button that in a s114 notice:

“The Chief Finance Officer of a local authority is under a statutory duty to issue a formal report if they believe that a council is unable to set or maintain a balanced budget, this is known as a s114 notice.

A s114 notice simply indicates that a council's forecast income is insufficient to meet its forecasted expenditure for that year. Although media reports may describe the issue of s114 notice as indicating bankruptcy, there is no procedure in law for a UK local authority to become bankrupt.”

Until recently the only s114 notices issued came as a result of a complete collapse in council management (Hackney did this twice in 1989 and 2000) but the latest warnings come from councils of every political leadership and relate simply to the gap between the estimated cost of statutory entitlements (chiefly the social services and care systems) and the ability of the council to raise the finance to cover those costs. And many local councils are only coping by running down their reserves in order to maintain a balanced budget. Here’s Bradford’s current budget:

“Bradford is therefore less able to raise sufficient funding to keep pace with inflation and demand for services. While the proposed increase in Council Tax will raise £11m to support local services this sum is dwarfed by the scale of the current financial pressures.”

To close the gap, Bradford Council has drawn down £44m from its reserves which is fine if the problem is a one-off or there is the expectation of more secure revenues in the future. The problem is that this simply isn’t the case:

“The Leader of Bradford Council has called on government to urgently improve funding to local councils as Bradford faces a £68m gap in its budget for this year.

The authority is forecasting that by the end of this financial year there will be a budget gap of £23m in the council and £45m in Bradford Children and Families Trust (BCFT) if nothing else changes. BCFT took over the delivery of children’s social care services from the council in April. It is independently run by a board of trustees and wholly funded by the council.”

We have seen similar statements about budget pressures from Kirklees, from Somerset and Kent County Councils, and from Manchester City Council. Plus the report from the County Councils Network (CCN) that I opened with. The media (and national politicians) prefer to focus on the scandals of bad property deals (Croydon, Woking, Thurrock) and equal pay cases (Birmingham) rather than recognising that these circumstances are, in large part, a consequence of financial constraints. In a healthier financial climate equal pay claims would be settled and councils would not be tempted by speculative property deals to try and generate more income.

Rather than look at how councils are funded, central government in England chooses to use the financial problems to push for greater regulatory control and for reorganisation. We saw above how Bradford Council’s children's services were taken out of their direct control and placed in a trust - this is the preferred situation for Whitehall which uses Ofsted to direct intervention and then statutory powers to impose on the council. The result of this, in Bradford at least, has been to force a huge increase in children’s services budgets (this will amount to £90m) creating a drain on the rest of council budgets as described by its leader.

The second response of central government - reorganisation - is seen in Bradford’s neighbour, North Yorkshire. Nine district councils have been scrapped to form a unitary council covering the whole of England’s second biggest county. The arguments for these mergers are usually couched in economic terms with a great deal of boosterism and talk of how the new super-council will have more clout. The truth is, of course, that taking over district councils allows the new unitary to strip their assets and services so as to delay the inevitable day when the costs of social care and looking after children make finances unsustainable.

English local government isn’t broke because it is badly managed. Nor is it broke because chief executives get paid more than the prime minister. Or because council leaders get bigger allowances. English local government is broke because the costs of the services central government mandates it to provide exceed the council’s capacity to raise finance. It is all well and good for Whitehall to say that “...councils are ultimately responsible for the management of their own finances…” but they also know this isn’t true.

Councils do not set the level of business rates, they do not determine the Revenue Support Grant, their ability to charge fees for social services is constrained by central government and the benefits system, and they cannot raise council tax above a strict cap without conducting a referendum (that they will inevitably lose - people don’t willingly vote for higher taxes). And councils, as we've already noted, can’t control the number of elderly and disabled people, the numbers of homeless families and the amount of children needing care. Yet all Whitehall does is wring its hands while lecturing councils about sound finances and threatening legal and administrative intervention.

When we see floods and wonder why the council hasn’t cleared the gullies, complain about decisions to turn off Christmas lights or look on the sad excuse for flower beds in the local park, maybe we should remember that, on current trends, three-quarters of council spending will be supporting the 3-5% of the population - adults and children - who are looked after in some way by the local council. And that this isn’t enough money to do the job well. Central government has three choices - fund councils adequately to provide these services, give councils the tax powers to raise the money to fund these services adequately, or take on the services themselves. Right now, none of this is happening and English local government will, as a result, go broke.