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If Austerity is over – as Rachel Reeves keeps trying to tell us – why are more local authorities going bankrupt?
The Guardian has details:
“Local authorities in England and Wales have warned their finances are at “breaking point” with more councils expected to fall into bankruptcy in future, as they face a nervous wait to discover their government funding this month.
“Council leaders expect changes to annual funding arrangements will result in steep cuts for many local authorities, preventing many from balancing their books and providing basic services to citizens.
“29 councils have already been unable to meet their financial obligations without special government loans, including Croydon, Thurrock in Essex and Birmingham.
“The number of local authorities unable to meet their statutory obligations was likely to grow when the government publishes a new funding settlement this month.
“The government said the outcome of its “fair funding review 2.0”, which is expected to be published on 17 December, will help councils cope with high levels of deprivation.
“Despite… extra cash for poorer areas, many Labour councils expect to make difficult decisions before agreeing a budget for 2026-27.
“Joanne Pitt, a senior policy adviser at the local authority accountancy body Cipfa, said borrowing by local authorities had reached £1,500 per person and was on course to rise further.
“Most of the 29 authorities given exceptional financial support – a temporary loan from the government – were rolling over the loans to stay afloat, she said.
“Most of the 29 authorities given exceptional financial support – a temporary loan from the government – were rolling over the loans to stay afloat, she said.”
This tells us that “austerity is over” has mostly been a political slogan, not a structural change in how the United Kingdom funds local government — and the structural problems that bankrupted councils under austerity were never fixed.
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The simple fact seems to be that councils are not getting the funding they need to make ends meet.
If the government simply can’t afford it, then there is a serious problem with whatever economic model it is using to provide such funding. Let me lay it out for you:
After the Conservative/Liberal Democrat Coalition government came into office in 2010, central government systematically shifted risk and responsibility onto councils while shrinking their reliable funding.
Councils lost huge chunks of their core “formula grants” after 2010. They were told to survive by raising council tax (which is capped), relying more on business rates (which are wildly uneven by area), and becoming “commercial” (property investments, trading companies, borrowing to invest).
That model was never sustainable. It just delayed the crash.
Now demand-led costs are exploding.
Adult social care is ageing-driven and essentially uncapped.
Children’s services costs are soaring, especially SEND* support.
Homelessness and temporary accommodation costs have risen sharply due to housing shortages and high rents.
These aren’t optional services – they are legal duties. This means councils must pay them first — and cut everything else.
There would be no cuts if Austerity was over. It is therefore clear that Austerity is not over.
If Austerity was over, government funding increases would cover real-world cost growth – and they don’t.
Government statements about “above inflation” increases are misleading, for several reasons:
They include income that councils only get if they raise council tax by the maximum allowed.
They ignore the fact that social care costs are rising faster than general inflation.
They don’t account for debt interest; councils were encouraged to borrow and now face higher rates.
This in turn means Austerity has plunged councils into permanent crisis managment.
The Section 114 bankruptcy notices are happening because councils literally cannot meet their legal obligations.
The issue is not “overspending”; it’s about rising unavoidable costs.
It’s about historic debt.
It’s about cuts that were already baked-into funding settlements.
And it’s about successive governments offering short-term “loans” instead of proper funding.
Local government in England can’t run deficits like central government. They can’t create money. Their tax powers are capped. And they are legally required to balance budgets.
So when costs outstrip income, they don’t get flexibility — they get forced into service cuts, “exceptional” loans, and asset sales that mean the cost of services will increase as councils are forced to rent back property and equipment they previously owned.
And as I stated above, the economic model is the problem.
The UK runs a highly centralised, Treasury-controlled system in which money is easy to create for banks or defence or to bail out markets, but is treated as scarce when it comes to social care, housing, or local government
That’s a political choice baked into the post-2010 model.
“Fair funding 2.0” won’t fix this. Tweaking formulas doesn’t solve unsustainable demand, debt traps, uncapped statutory duties, and a tax system that can’t meet real needs.
So Austerity isn’t over.
It has just been rebranded, while local authorities are being left to collapse quietly at the front line.
What you are seeing is not council failure.
It’s systemic central government betrayal, pushed off onto local authorities so ministers can pretend the national balance sheet looks tidy.
*Special Educational Needs and Disabilities.
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Councils are being squeezed to collapse so the government can pretend to be clean
Share this post:
If Austerity is over – as Rachel Reeves keeps trying to tell us – why are more local authorities going bankrupt?
The Guardian has details:
“Local authorities in England and Wales have warned their finances are at “breaking point” with more councils expected to fall into bankruptcy in future, as they face a nervous wait to discover their government funding this month.
“Council leaders expect changes to annual funding arrangements will result in steep cuts for many local authorities, preventing many from balancing their books and providing basic services to citizens.
“29 councils have already been unable to meet their financial obligations without special government loans, including Croydon, Thurrock in Essex and Birmingham.
“The number of local authorities unable to meet their statutory obligations was likely to grow when the government publishes a new funding settlement this month.
“The government said the outcome of its “fair funding review 2.0”, which is expected to be published on 17 December, will help councils cope with high levels of deprivation.
“Despite… extra cash for poorer areas, many Labour councils expect to make difficult decisions before agreeing a budget for 2026-27.
“Joanne Pitt, a senior policy adviser at the local authority accountancy body Cipfa, said borrowing by local authorities had reached £1,500 per person and was on course to rise further.
“Most of the 29 authorities given exceptional financial support – a temporary loan from the government – were rolling over the loans to stay afloat, she said.
“Most of the 29 authorities given exceptional financial support – a temporary loan from the government – were rolling over the loans to stay afloat, she said.”
This tells us that “austerity is over” has mostly been a political slogan, not a structural change in how the United Kingdom funds local government — and the structural problems that bankrupted councils under austerity were never fixed.
The simple fact seems to be that councils are not getting the funding they need to make ends meet.
If the government simply can’t afford it, then there is a serious problem with whatever economic model it is using to provide such funding. Let me lay it out for you:
After the Conservative/Liberal Democrat Coalition government came into office in 2010, central government systematically shifted risk and responsibility onto councils while shrinking their reliable funding.
Councils lost huge chunks of their core “formula grants” after 2010. They were told to survive by raising council tax (which is capped), relying more on business rates (which are wildly uneven by area), and becoming “commercial” (property investments, trading companies, borrowing to invest).
That model was never sustainable. It just delayed the crash.
Now demand-led costs are exploding.
Adult social care is ageing-driven and essentially uncapped.
Children’s services costs are soaring, especially SEND* support.
Homelessness and temporary accommodation costs have risen sharply due to housing shortages and high rents.
These aren’t optional services – they are legal duties. This means councils must pay them first — and cut everything else.
There would be no cuts if Austerity was over. It is therefore clear that Austerity is not over.
If Austerity was over, government funding increases would cover real-world cost growth – and they don’t.
Government statements about “above inflation” increases are misleading, for several reasons:
They include income that councils only get if they raise council tax by the maximum allowed.
They ignore the fact that social care costs are rising faster than general inflation.
They don’t account for debt interest; councils were encouraged to borrow and now face higher rates.
This in turn means Austerity has plunged councils into permanent crisis managment.
The Section 114 bankruptcy notices are happening because councils literally cannot meet their legal obligations.
The issue is not “overspending”; it’s about rising unavoidable costs.
It’s about historic debt.
It’s about cuts that were already baked-into funding settlements.
And it’s about successive governments offering short-term “loans” instead of proper funding.
Local government in England can’t run deficits like central government. They can’t create money. Their tax powers are capped. And they are legally required to balance budgets.
So when costs outstrip income, they don’t get flexibility — they get forced into service cuts, “exceptional” loans, and asset sales that mean the cost of services will increase as councils are forced to rent back property and equipment they previously owned.
And as I stated above, the economic model is the problem.
The UK runs a highly centralised, Treasury-controlled system in which money is easy to create for banks or defence or to bail out markets, but is treated as scarce when it comes to social care, housing, or local government
That’s a political choice baked into the post-2010 model.
“Fair funding 2.0” won’t fix this. Tweaking formulas doesn’t solve unsustainable demand, debt traps, uncapped statutory duties, and a tax system that can’t meet real needs.
So Austerity isn’t over.
It has just been rebranded, while local authorities are being left to collapse quietly at the front line.
What you are seeing is not council failure.
It’s systemic central government betrayal, pushed off onto local authorities so ministers can pretend the national balance sheet looks tidy.
*Special Educational Needs and Disabilities.
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