Tory councils warn coronavirus second wave could bankrupt local authorities

A group of Conservative-run councils has told ministers that a second wave of coronavirus would leave them with a multibillion-pound budget shortfall, triggering a wave of insolvencies and forcing a fresh round of emergency cuts to local services.

Patrick Butler 

The County Councils Network (CCN), which acts for 39 of the biggest English authorities, said that even without a resurgence of Covid-19, they face “large scale reductions in services this year” unless ministers agree to a long-term bailout plan.

It called for a government-backed “income guarantee” to underpin council finances over the next five years, as well as short-term emergency funding to keep authorities afloat as they struggle with declining council tax income and rising social care costs.

The financial impact of Covid-19 pressures “may lead to a significant number of councils being forced to consider whether a S114 notice [a statement of effective bankruptcy] is required,” a CCN-commissioned report said.

The findings will increase pressure on ministers to agree to a further funding measures to stabilise English councils, which collectively estimate shortfalls of around £9bn this year as a result of pandemic costs and income losses from local taxes and charges.

Although the government injected £3.2bn of pandemic emergency funds into local authorities in two tranches in March and April, councils said that money has run out and that many are currently running on “fresh air”.

The CCN is said to carry weight in Whitehall because its members provide local council services in around two-thirds of all Tory-held constituencies, including in home counties heartlands such as Kent, Surrey, Buckinghamshire, and Hampshire.

Housing and local government minister Simon Clarke told MPs earlier this week he was “working closely with cabinet colleagues on a comprehensive plan to ensure councils’ financial sustainability over the financial year ahead”.

Asked by Labour MP Kate Osamor whether councils should prepare for a second wave of austerity cuts to enable them to balance their budgets, Clarke replied: “The answer to that question is unequivocally no, they should not.”

However, several councils have started to plan emergency cuts to stave off bankruptcy. Wiltshire county council last week said that a £50m shortfall caused by extra pandemic costs had put it at “significant risk and threat” of collapse, while Luton borough council has warned of £22m cuts.

Manchester city council is to hold an emergency budget next month after saying that a £133m shortfall leaves it with “difficult choices”. Stevenage borough council last week agreed an emergency budget to freeze short-term spending after estimating it faced a £6m shortfall.

The report by consultants Grant Thornton modelled three scenarios that leave the 39 CCN member councils with a collective shortfall of between £2.5bn and £4.5bn by April 2022, depending on whether a Covid-19 second wave leads to a second lockdown.

It found member authorities will have fully exhausted their financial reserves within 18 months under current projections, leaving many unable to fulfil their legal duty to balance their annual budget and vulnerable to insolvency.

Many councils would have little scope to find further cuts because a decade of real-terms funding reductions “has left most councils with significantly fewer options to drive out further efficiency or to make cuts to front line services”, the report said.

Cllr Carl Les, CCN finance spokesperson and leader of North Yorkshire county council, said: “This research shows the challenges facing county authorities and the severity of the potential impact on councils’ sustainability.”