Three councils across London and the East of England have asked the Government for financial support to avoid bankruptcy. We examine the outlook for local government.
The Secretary of State for Levelling Up, Housing and communities, Michael Gove has told three struggling councils that they will be allowed to significantly raise council tax without needing to hold a referendum.
Croydon, Thurrock and Slough Councils have all endured financial troubles in recent years due to failures in local leadership and financial management. This has resulted in each authority issuing section 114 notices in the past two years.
The news comes after the Local Government Association (LGA) had issued a warning of an “existential financial crisis” for local authorities.
A section 114 notice is issued when a local council is no longer in a position to finance its budget. When one of these is issued, the council is only allowed to spend money on protecting vulnerable people, statutory services and pre-existing commitments. In other words, if a local authority issues a section 114 notice then they are effectively bankrupt.
Due to their woes, Thurrock Council, Slough Council and Croydon Council all recently requested the approval of council tax increases. Under current rules, a council is only allowed to raise council tax by 5% without the need of a referendum. However, the government have decided to be more lenient on this occasion.
Croydon will increase its council tax by 10 percent – while Thurrock and Slough will raise it by 5 percent. However, none of the three have ruled out the possibility of further hikes which could see each one adding another 5 percent on top of their current plans in the coming months.
The news comes after research from the County Councils Network (CCN) discovered that three in four councils are set to increase council tax this year.
Unavoidable Rises
Croydon is arguably the council most in need of council tax rises. It has issued three separate 114 notices in recent years and has debts of ยฃ1.6 billion. Jason Perry, Executive Mayor for Croydon Council, has empathy for Croydonโs residents but believes the council tax rises were the only option available:
โI know this is going to be difficult for people in Croydon, particularly when they face other pressures but without the proposed increase, the council would need to make a further ยฃ20m of additional cuts this year, putting vital services to vulnerable residents at risk. This would be on top of the ยฃ36m savings that have already been proposed for the coming yearโs budget.โ
The tax rises wonโt be enough to get Croydon out of the hole it finds itself in, however. Jason Perry is also in talks with the government about reducing the councilโs debt. It is believed that an agreement on this could also be close.
Unlike Croydon, Slough and Thurrock have only had to issue one section 114 notice. Thurrockโs came most recently in December 2022, while Sloughs came back in July 2021. At the time, they blamed the impact on the COVID pandemic, however, upon closer inspection it was evident that their financial issues had been ongoing for some time.
Speaking about the new tax rises, Slough Councillor, Rob Anderson said:
โGiven the need to get the council back on a sound financial footing and with inflation over 10%, this increase was unavoidable if we wanted to protect our services.โ
A Warning From the Government
The decision to approve these tax hikes was communicated via letters signed off by Lee Rowley, Parliamentary Under Secretary of State for Local Government and Building Safety. These letters to Croydon, Thurrock and Slough have been published publicly so residents within these councils can learn more about the proposed changes.
In addition to the letters, Michael Gove has released the following statement:
โGiven the exceptional circumstances of these councils, including unprecedented financial deficits driven by poor decision-making in the past and the need for ongoing government intervention to drive their improvement and recovery, the Government has decided not to oppose the requests.
The Government is of course conscious of the impact on local taxpayers, particularly those on low incomes, of having to foot part of the bill for their councilsโ very significant failings. We have been clear to each of the councils that in implementing any additional increases, they should take steps to mitigate the impact on those least able to pay.โ
Final Thought
Once again, taxpayers are expected to foot the bill for mistakes made by those who are meant to govern responsibly. And although Michael Gove has said that each council needs to take steps to โmitigate the impact on those least able to payโ, it is unclear how he proposes they do that without borrowing more money. This, in turn, will surely mean that their debts will only increase.
The issue of financial governance of local government is examined by Helen Belcher OBE, Liberal Democrat Politician and transgender activist in Chamber UK’s upcoming print journal. To signup for this year’s spring journal featuring Op-Eds from Scotland’s First Minister, Nicola Sturgeon see here.
