A record 30 English local authorities have been granted effective “bailouts” enabling them to borrow money to avoid bankruptcy, as ministers advised them against selling off prized local assets such as historic buildings, parks and allotments.
The councils, all of whom were considered to have “unmanageable debts”, were given the green light by ministers to collectively borrow £1.5bn to plug significant budget gaps caused by underfunding and soaring demand for social care and other services.
Three councils – Birmingham, Bradford, and Windsor and Maidenhead – will each be allowed to borrow more than £100m this year to stay afloat, while also being allowed to issue cap-busting council tax bill increases of up to 10%.
Six councils who are in special measures after declaring effective bankruptcy in recent years – Birmingham, Croydon, Nottingham, Slough, Thurrock and Woking – have again been granted special financial help.
The exceptional financial support (EFS) packages enable councils to take out capital loans to fund revenue spending, on the basis they will pay down the debt in future by disposing of assets and cutting back on frontline services.
For the first time, the government has imposed conditions preventing councils granted EFS help from selling what it calls “community and heritage assets”, reflecting fears that desperate councils could embark on a fire sale of well loved parks, golf courses, regeneration land and artworks.
Councils granted special borrowing packages for the first time include Newham, Shropshire, Swindon, Trafford, West Berkshire, Wirral, Enfield, Halton, Barnet, Solihull, Worcestershire and Worthing.
The number of London authorities receiving EFS jumped from two to seven, year-on-year. Claire Holland, the chair of London Councils umbrella group, said: “These figures show almost a quarter of town halls in London would face financial collapse without emergency borrowing.”
Jim McMahon, the minister for local government, said: “We are under no illusion of the state of council finances and have been clear from the outset on our commitment to get councils back on their feet and rebuild the foundation of local government.
“We are working with local leaders, encouraging councils to come in confidence where needed to seek help and be assured we will offer a relationship of partnership – not punishment – in our joint mission to improve public services for communities and create economic stability.”
A statement from the Ministry of Housing, Communities and Local Government said reform of council finances “would take time” and there was “potential for continued instability” in the months and years ahead.
Hampshire county council, which applied for EFS support in the form of a 15% council tax rise for the next two years, had its bid rejected by ministers earlier this month.
The 50% year-on-year increase in the number of EFS packages reflects rapidly deteriorating municipal balance sheets at councils all over England, in rural and urban areas, regardless of local political control.
Upper-tier council balance sheets do not currently reflect soaring deficits in special educational needs spending, which are effectively kept off the books under special accounting rules due to come to an end in just over a year’s time.
EFS support packages have proliferated since being introduced in 2021. Then, the tiny handful of EFS recipients had sought help after declaring effective bankruptcy as a result of risky property investments.
Now most councils granted EFS are thought to be generally well-run victims of years of the structural underfunding that accompanied austerity, high inflation costs, as well as soaring demand for adult social care, child protection and homelessness services.
The EFS approach goes against good accounting practice, and is seen by critics as a short-term fix that avoids effective insolvency by loading councils with debts. Many believe Labour’s ambition to tackle local government finance will fail without changes to council tax.
