Land of the rising debt has lessons for us here
HANDS up if you’re familiar with angel numbers! Gosh – that many! Anyway, for any non-numerologists, they’re a showoff name for numbers starting with repeated digits. Multiple repeats preferred, but even two are pretty angelic.
And 114, numerologists reckon, is especially angelic – bringing “a wonderful message from the divine realm, resonating with the energies of happiness and fulfillment”.
Which sounds promising news for leaders and chief finance officers of our increasingly cash-strapped councils, flirting with the world of ‘Section 114 Notices’ – but we’ll see.
First, though, a swift trip to Kyoto – centre of Japan’s main island of Honshu, former imperial capital city, loads of Zen temples and World Heritage sites, cherry blossom gardens, a tourist mecca.
Well, I’m fortunate enough to be an occasionally ‘Visiting Professor’ at a university close to Kyoto – until Covid put a stop to being a Visiting Anyone, Anywhere, or indeed being visited by Japanese students and academics.
Which I obviously miss for several reasons – not least being that one question we’d regularly discuss, and which around Kyoto nowadays is a seriously hot topic, was municipal bankruptcies: local governments going broke.
In truth, Kyoto’s finances were suffering well before Covid and Japan’s near-total tourist ban – through over-ambitious investment and, my Japanese graduate students would claim, financial mismanagement.
Either way, Japan’s dropping from 31 million pre-Covid overseas visitors in 2019 to barely 250,000 in 2021 would challenge any institutional management.
Senior citizens’ travel subsidies have been slashed, fees raised, civil servant numbers and salaries cut, temples taxed. But, as a quick
Google of ‘Kyoto finances’ will confirm, a serious bankruptcy threat remains.
The B-for-bankruptcy word features in Japanese public debate about local government finance – where it’s actually T-for-tõsan – in a way that almost resembles the US.
There, municipal bankruptcies were historically so frequent that they were annually mapped – making
free visual aids for lecturers like me.
The culmination was Detroit’s historic case in 2013 – the Michigan city crashing with just the
$18 billions of long-term debts!
Following which, state governments became far readier to monitor and intervene in their local governments’ affairs before they get out of control. Detroit recovered remarkably, and bankruptcies of ‘general purpose’ local governments largely dried up … until Covid.
Japan’s story is not dissimilar. Its Detroit, a few years earlier, had been the northern Hokkaido coal-mining town of Yubari – famous nowadays for its ludicrously expensive melons, but also its spectacular 2007 financial crash and bankruptcy – which it won’t finish finally paying off, through increased taxes and reduced staff and services, till about 2030.
This crash owed more to the massive population exodus following the swift demise of Yubari’s mining industry than to financial mismanagement, for which the national government was as blameworthy as Yubari’s.
Which was acknowledged in the swift passage of a ‘No More Yubaris’ law, or Local Finance Soundness Act, introducing strict fiscal accounting procedures effectively preventing municipal bankruptcies.
Here’s the thing, though. My Japanese students – back when I had some – would still talk the language of ‘local bankruptcies’, both when
referring to their municipalities and asking about ours.
Likewise, that ‘Kyoto finances’ Google will still produce one or other ‘B’ word: ‘broke’ or ‘bankrupt’.
And it’s catching. Particularly post-Yubari, they’d ask, what happens when UK councils go bankrupt?
And I would carefully explain that nowadays they not only don’t ‘go bankrupt’ – in the way companies, individual citizens, and Japanese local governments could – but legally they CAN’T run a so-called deficit budget.
It became a mini-lesson in UK finance law, as well as one further illustration of even our biggest councils’ limited financial discretion, and of central government’s domination of our whole local government system.
The proverbial ‘bottom line’ is that every council is legally required each financial year to
‘balance its books’. True, ‘balance’ here isn’t precisely defined, but it means a council’s chief finance officer (CFO) must do everything possible to identify ‘usable reserves’ and maybe ‘balances’ from specific accounts that can be drawn on and enable those end-of-year books to balance.
If this doesn’t work, or convince auditors, the CFO can, as a last resort, issue a Section 114 Notice, from the 1972 Local Government
Act. This indicates that the council, having failed to respond adequately
to the warning of the impending imbalance, is banned from spending on all services, except those protecting vulnerable people.
It’s a crisis – and massive, nationalscale political embarrassment.
Ministers, ‘the department’ – currently Michael Gove’s ‘Department for Levelling Up, Housing and Communities’ – and the world now know, and a usually semi-retired but Very Important ‘Inspector’ will be dispatched to sort you out.
Still no actual bankruptcy, but the very reverse of the “angelic message from the divine realm” that numerologists reckon the number 114 presages. And, further concerning news, these Section 114 Notices have gone forth and indeed multiplied in recent years.
Five years ago, I couldn’t point my Japanese visitors to a single actual 114 Notice in nearly two decades. Then in 2018 came Northamptonshire County Council – doubly embarrassingly, having only just moved into its new £53 million headquarters.
Following which have been the London Borough of Croydon – three in successive years (sorry, not enough space!) – Slough (Berkshire); Nottingham City, Copeland (Cumbria), Northumberland and Pembrokeshire CCs, with others doubtless queuing up, even as I type.
What was until recently almost a ‘great unmentionable’ has become a topic of everyday local government conversation – and of speeches by our own local council leaders, like Birmingham’s Ian Ward just weeks ago.
Difficult times indeed.
The proverbial ‘bottom line’ is that every council is legally required each financial year to ‘balance its books’.