Third of councils risk emptying reserves in next 10 years
Over a third (36%) of all councils in England are at risk of financial failure in the next decade and 17% could be in crisis as early as 2021, according to research by Grant Thornton UK which examined the impact of cuts in revenue grants
11 Jan 2019
A council is defined as ‘at risk’ if their reserve levels are at, or below, 5% of total expenditure.
London boroughs are found to be most exposed with 78% (25) forecast to be at risk of financial failure over the next decade. Unitary authorities and metropolitan councils are the two next most vulnerable authority types, with 49% and 50% expected to hit financial failure by 2028 respectively.
While 12 county councils (44%) are forecast to be at risk over the next decade, a number of these are also facing an uncertain future in the more immediate term. Three are likely to be at risk in the next three years - a number that rises to seven if the ‘at risk’ level is increased to reserves at, or below, 10% of total expenditure.
Grant Thornton said its research indicates that only 43 district councils (21%) are set to become at risk over the next decade. The firm says it is significant that these councils do not have statutory responsibility for demand-led social care services, which is the number one issue and financial strain for many other councils currently.
The analysis also looked at the impact the proposed reduction of the revenue support grant in 2019/20 would have on councils if alternative funding - such as the suggested increase in business rate retention - was not implemented.
The data found that, if overall income levels grew in line with current rates (and there was no change in the level of business rates retention), once the grant ceases in 2019/20, then 52% of all authorities would be ‘at risk’ of financial failure within the next 10 years. London boroughs and county councils would be most affected, with 97% and 93% at risk respectively.
Several councils reported severe financial difficulties in 2018. In August, Northamptonshire County Council reported that it was 'technically bankrupt' after discovering £70m in debts and began a budget recovery program. Somerset County Council announced in the summer that it would significantly scale back spending on childcare and social services.
Paul Dossett, head of local government, Grant Thornton UK, said: ‘The local government sector is facing unprecedented demand and financial pressures, and the risk of financial failure has never been more acute.
‘The very public struggles of Northamptonshire and Somerset County Council’s this year demonstrate the intense distress many councils, and in turn their citizens, are facing.
‘Our analysis shows that it won’t be long before others also reach breaking point, with almost a third of all councils found to be at risk of depleting their reserves in the next 10 years, if not sooner.
‘Council reserves should only be used to cover the cost of unexpected events and are an unsustainable method of long-term funding. With future funding levels an ongoing uncertainty, ensuring their financial sustainability is now the number one issue facing councils.’
Report by Pat Sweet