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LGA chair voices 'genuine fear' councils will go bankrupt

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Some local authorities will go bankrupt in the next five years without reform of the local government financing system, the chair of the Local Government Association has warned.

In an interview with LGC, Cllr Sparks (Lab) said the prospect was “especially” real given that the Conservative manifesto pledged to find £13bn of cuts to departmental budgets, on top of £12bn unspecified welfare savings. He called for the government to look again at how money is allocated and a distributed to local government in the context of greater devolution to local authorities, including considering regional place based budgets.

He said: “I would urge [the new government] to refrain from an arrogant wielding of power without any responsibility to local government.

“We are just arguing for a more sophisticated analysis of local government finance because the current system, if it’s unaltered, is going to lead to some local authorities being bankrupt,” he said.

“I think that local government will be unable to deliver the range of services that people expect of local government.”

He added: “It is a genuine fear.”

Half of respondents to LGC’s recent confidence survey predicted they would cease to receive any central government funding in the next four years if cuts continued at the current rate. Of more than 200 respondents, 6% said they knew of a council facing a financial crisis which would leave it unable to provide statutory services within the next 12 months, while 2% said their own organisation was in that position.

Cllr Sparks pointed to West Somerset DC which, in 2012, was on the verge of becoming financially unviable before it entered into a shared arrangement with neighbouring Taunton Deane BC. He also said there had been “major financial problems” at Birmingham City Council which has had to “sell a load of stuff to keep going”. In January, Birmingham sold the National Exhibition Centre and the Genting Arena, formerly the LG Arena, among other venues, for £307m.

Expanding on his fear about local government finances, Cllr Sparks said: “It’s just basic arithmetic. It’s not a false claim. Local government cannot go bankrupt because central government steps in, but that’s when local government stops being local.”

Cllr Sparks said he wanted a model that was “fairer than the Barnett formula”, and called for funding at a “micro” level which “takes into account need as well as locality”.

One of the recommendations contained in the Independent Commission on Local Government Finance proposed devolving up to £200bn of central funding for services - including health and policing - to “sub-national areas” under “place based budgets”. It would then be up to regions to decide how funds were spent in each area.

The LGA would be referring to the commission’s recommendations as part of “serious discussions” with new ministers, said Cllr Sparks. He said: “I would hope they would be open to having a serious look at new proposals for raising finance.”

Cllr Sparks said devolution, alongside local government finance, were “massive” issues for the incoming government. Last month, councils in England, Wales, Scotland and Northern Ireland called on the next government to use the first Queen’s Speech to legislate to secure devolution. Cllr Sparks said the two were linked: “You can’t consider the structure without considering how you finance the structure.”

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