Councils face bankruptcy as they try to prepare for a second wave of Covid-19

“Unless we get some certainty around income levels recovering or certainty of any additional help from the government in terms of this year’s budget or future years’ budgets, there a risk at some point in the future we may be faced with having to look a Section 114 notice,” says Jon Triggs, head of resources at North Devon Council…..

North Devon Council is run by the Lib Dems, but all but two of Devon’s parliamentary constituencies are represented by Conservative MPs. Again, it appears Tory cuts are coming back to bite their local parties and voters.”

By Anoosh Chakelian www.newstatesman.com 

In February 2018, for the first time in nearly 20 years, a council went bust. Northamptonshire County Council issued a section 114 notice, which stops any new spending – effectively declaring bankruptcy. It was a rare move for a local authority. Hackney Council was the last to do the same in 2000.

There were idiosyncratic problems with the way the council was run, but it had also fallen victim to cuts. Local authorities have lost 60 per cent of core government funding since 2010. Worse for defenders of the austerity agenda, Northamptonshire was a Tory council.

County councils – generally Tory-run – appeared particularly hard-done-by in 2018. Their core government funding was decreasing faster than other types of councils, and were calculated at the time to face a 93 per cent fall in funding by 2020.

As I reported at the time, there were Conservative councillors and right-wing Conservative MPs who believed Northamptonshire wouldn’t be the last.

And, come the Covid-19 pandemic, so it turns out. Councils all over the country are on the brink of effective bankruptcy (local authorities cannot technically go bankrupt, and must keep providing certain mandated services that are their statutory duty).

The costs of responding to Covid-19 and losses of income from lockdown incurred by councils in March, April and May amounted to £3.2bn, according to the Local Government Association (LGA). This national total has been met by the two tranches of emergency funding of £1.6bn each provided by government to councils so far, unevenly divvied up.

Yet councils could need as much as £6bn more, according to LGA figures, to cover the costs of coping with the coronavirus pandemic during this financial year. Since the government urged councils to spend “whatever is necessary” on the coronavirus response, the promise to reimburse all that spending has been diluted, and already councils have not been repaid enough to fill their budget black holes.

“Unless we get some certainty around income levels recovering or certainty of any additional help from the government in terms of this year’s budget or future years’ budgets, there a risk at some point in the future we may be faced with having to look a Section 114 notice,” says Jon Triggs, head of resources at North Devon Council.

The crunch point could be around the corner: “Not in less than two months. We’re probably talking a few months,” he tells me.

Because of Devon’s reliance on tourism and hospitality – industries ravaged during the lockdown – other councils in the county are in the same situation, according to Triggs.

“We’re not the only council to raise the risk of a section 114 as you know, there’s lots of councils out there. All the other councils in my area are saying exactly the same.”

North Devon Council is run by the Lib Dems, but all but two of Devon’s parliamentary constituencies are represented by Conservative MPs. Again, it appears Tory cuts are coming back to bite their local parties and voters.

“We’d seen significant cuts since 2010 so council funding has reduced significantly,” says Triggs. “For us, being a shire district council, we’ve seen an almost 40 per cent funding reduction, in terms of core government grants.

“Every type of authority is affected differently and the south-west, obviously being so heavily reliant on visitors and tourism, is going to take a lot longer to recover. Different councils will recover at different paces, depending on where you are in the country.”

Indeed, all areas of different political stripes appear to be facing immediate financial crises. From the majority-Conservative Norfolk County Council to the Labour-run Croydon Council in south London, officials have had to deny considering section 114 notices after reports of their dire budget black holes due to Covid-19 spending.

“Local government continues to lead the way during the emergency response to this crisis, but they are being stretched to the maximum,” says the leader of Bedfordshire Council and chairman of the Local Government Association, James Jamieson. “Councils will need further funding and financial flexibilities in the weeks and months ahead to meet ongoing COVID-19 pressures and to keep services running normally.

“Certainty around this is desperately-needed so councils can balance their budgets this year and take vital decisions about how to pay for vital local services next year.”

If the government does not deliver on full reimbursement, it could lead to councils issuing section 114 notices and toppling across the country.

“It is the very last resort,” says Sharon Taylor, the Labour leader of Stevenage Borough Council, which had the issue of a section 114 “under review” in May.

“I don’t think any of us [council leaders] could rule it out – none of us know what’s going to happen over the next few months.

“But were we to get a second wave of this and the lockdown was going to start all over again, if you get in a situation, we’d be having to review this before September, I suspect, if that was us. I don’t think any of the councils are out of the woods yet.”

If councils had to put a halt on spending, this means they could only deliver their core functions: mainly social care for vulnerable adults and children. Services crucial to the pandemic response – from rough sleeping programmes, local domestic abuse support, and the provision and maintenance of public parks – would be lost, as would services key to the aftermath, such as fitness and a leisure.

“If all of that starts to take a major hit and we can’t deliver those services, that will be a really big issue,” says Taylor.

“This is because local government finance was so fragile in the first place. We were all living on a wing and a prayer even before Covid came along, and ten years of austerity, ten years of cutting away at these services that people are now realising are essential.”

Not only could councils face bankruptcy just as they are required to help people through a second wave, but their pandemic response has already been hampered by austerity.

“Your ability to be able to react to a pandemic such as this is put under pressure because of that lower level of resources – not just financial resources but also manpower resources,” says Triggs. “As councils, we’re being asked to do a lot more in the pandemic response, with a workforce that has had cuts to it over the last ten years.”