Comment Councils going bankrupt? Now don’t be Scilly!
ham: one-16th its area, with one-480th of its population – though, interestingly, with one councillor for every 109 residents, compared to Birmingham’s post2018 ration of one for every 10,900.
As a genuinely unitary authority, though, it has most of Birmingham’s major functions, including an airport, plus fire services, water supply, sea fisheries and coastal defence.
Unfortunately, Scilly’s unique status doesn’t exempt it from the same austerity pressures and government grant cuts faced by all English councils – and it’s suffering badly.
For last week its external auditors concluded that – with nearly £3 million needed to pay staff and suppliers, no council tax income for the last two months of the financial year, and reserves down to £0.5 million – the law needed something extremely rare and threatening.
They made a written “recommendation” in their Annual Audit letter, under the dreaded Section 24 of the Local Audit and Accountability Act 2014, that the council needs, in short, to reassess its reserves, borrow the necessary money, and get its whole financial act together, pronto – all of which is “copied to the secretary of state”.
If the recommending and copying sound genteel, they’re genteel in the same bullet-shaped way as a Mafia “message job” – as was recognised by the eminent former Labour leader of the last council to have received a Section 24 missive, just weeks previously from coincidentally the same auditors, Grant Thornton.
“The most concerning audit letter I have seen in all my [36] years on the council” was Councillor Sir Albert Bore’s verdict ( Birmingham Mail, November 22, 2016), the council, of course, being Birmingham and the equivalent budget black hole not £3 million but pushing £38 million.
It’s true Sir Albert has “form” in these matters, having spent much of his last term as leader trying to alarm the coalition government with warnings of impending doom. And as recently as June 2014, MPs – and Post readers – were hearing how “Birmingham could go the way of Detroit [and] go bankrupt in 18 months”.
It didn’t, and, as I’ll suggest, it couldn’t and wouldn’t. In a UK local government context, the B-word is misleading – indeed, silly. But that’s certainly not denying the almost weekly evidence of the increasingly desperate financial plight of local government generally and certain individual councils in particular.
Circumstantial evidence, Exhibit 1: not only did Birmingham’s auditors not feel compelled to issue a Section 24 report in 2013/14, but not one such report was issued to any council during the whole four-year 2010 spending review period. Now, we’ve had two in two months.
If councils were companies or individuals, these reports would indeed be bankruptcy alarms. But UK councils, unlike US local government or our own national government, are statutorily required to set each year a balanced budget. Running a deficit of the smallest fraction of Detroit’s nearly $400 million in 2013 is simply not possible.
That’s not to say there won’t be action and unpleasant consequences for Scilly and Birmingham and their residents: government intervention and “special measures”; further cuts, borrowing, asset sales and outsourc- ing; and for Scilly, probably, more mainland management.
So not bankruptcy in the normal legal sense, but one of several unusual, and, it feels, cumulative signs. Conservative-run Surrey County Council backed down from balloting residents on a 15 per cent council tax rise to pay for social care, but they and almost everywhere else will see five per cent increases, or the maximum permitted without a referendum.
Adult care budgets, hitherto protected, are now being cut and, perhaps most seriously, social services directors are warning of possibly not being able to meet their statutory obligations – if, say, a freeze on all council spending prevented them incurring expenditure to place vulnerable children in care.
So, just because you may not be hearing dramatic rumours of council bankruptcies, it doesn’t mean all’s well. It’s more likely that officers, councillors and maybe even commentators are focusing on the more mundane measures necessary to balance budgets and close funding gaps without making a council liable to legal challenge. Chris Game is a lecturer at the Institute of Local Government Studies, at the University of
Birmingham
Just because you may not be hearing dramatic rumours of council bankruptcies, it doesn’t mean all’s well