The Guardian view on local government finance: a crisis that corrodes democracy
What most people experience of government most of the time is local – the condition of roads, bin collections and other services that make the difference between communities thriving or sinking. But the salience of local experience is not reflected in the power of local politicians. Britain has an ultra-centralised state. Councils are obliged by law to run balanced budgets, but with few levers to innovate in policy delivery or raise revenues. They are not trusted by Whitehall to raise public debt. They must apply the sharp end of the knife for cuts mandated from on high.
Since 2010, local councils in England have suffered a funding shortfall that, once inflation and other pressures are factored in, amounts to a drop in spending power of around 50%. The consequences are laid bare in a report published on Wednesday by the Local Government Information Unit (LGIU) thinktank.
Dozens of English councils are on the brink of financial collapse. Last year, three of them – Birmingham, Woking and Nottingham – issued section 114 (S114) notices, the emergency mechanism by which local authorities declare effective bankruptcy. This used to be rare. The LGIU’s research finds scores of councillors saying that they expect to pull the S114 trigger in the coming years, if not months.
The cost of living crisis that has made bills more onerous for individuals also drives up costs for councils, with a multiplying effect. It is the most vulnerable people who are hit hardest, needing more interventions, which have become more expensive. Council tax rates are effectively capped by a requirement to ballot on rises above a centrally set threshold. Even when councils charge the maximum, they are obliged to cut services to balance the books. Some revenue is available from commercial ventures, but those carry a risk. Misjudged property investment propelled Thurrock into S114 insolvency in 2022.
Another option is spending reserves and selling assets, but that is not sustainable. Charges can be levied on services. So-called “discretionary” spending on things that councils are not legally obliged to provide can be axed.
In practice that means losing stuff that defines quality of life in an area: parks, leisure centres, advice services. Voters are paying higher taxes for a worse experience of government. That breeds disillusionment.
There are potential remedies. Local government finance needs to be on a more stable footing, with multiyear funding settlements, more capacity for transfer between authorities, and less competitive bidding for discrete pots of Whitehall cash that are conjured up for some ministerial pet project. Council
tax, based on long-outdated property valuations, needs reform. Councils could be trusted to generate and keep more of their own revenue.
Some of these changes are more politically feasible than others in the short term. The Treasury is famously reluctant to cede control regardless of which party is in power. But the question of alternative models will force itself on to the agenda, if not before an election then soon afterwards.
Underfunded council services generate social costs that put further pressure on budgets, degrading services and feeding alienation and public anger. This vicious cycle is an engine of political disaffection that, over time, corrodes confidence in democracy. Westminster politicians might think themselves above local government, but they will be dragged down if they don’t get to grips with the crisis.