Birmingham. Woking. Slough. Thurrock. Croydon. Nottingham. Bradford. Everywhere you look, there are councils in bankruptcy, or heading towards it. In fact almost a fifth of council leaders surveyed by the Local Government Association say they are at risk of going bust in the next year. So what’s going on?
There are, essentially, two competing explanations: that these councils have been badly run, and that they’ve been squeezed dry by central government. When I interviewed Michael Gove in October, he plumped emphatically for the former. Inflation had made things tougher for councils, he admitted, but those that had actually gone bust tended to have made some pretty obvious mistakes. And tended to have been run by Labour.
He had a point. In many cases the councils issuing section 114 notices (which confirm they cannot meet their legal duty to balance the books) have made catastrophically bad decisions. Birmingham hit the headlines because of a £2 billion compensation claim for equal pay. But it also managed to spend seven times more than budgeted on a new IT system. Nottingham lost £38 million on setting up a vanity energy company and millions more on redeveloping a castle that no one visited. The scale of waste and dysfunction in Croydon was so great that an external report recommended the police be called in.
That said, the people blaming it all on austerity have a point too. In the decade after the financial crisis, central grants to local government in England were cut by 40 per cent in real terms, and councils’ spending power fell by 15 per cent. That was compensated for, from about 2016, by making it easier to raise council tax, as well as a more generous funding settlement and then additional money to help with the pandemic. But there’s no doubt the axe bit deep.
Yet both explanations miss a key part of the story — which is not how much councils are spending, but what they have to spend it on.
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You or I might think of our council as, well, a council — a democratically elected organisation that takes our taxes and uses them to pay for things we need and want (or in some cases don’t). But that’s not actually true. Councils are effectively the means by which Whitehall delivers certain services. But not all those services are equal. And the stuff that most resonates with the middle classes — collecting rubbish, running libraries and swimming pools, keeping parks tidy — comes a long way down the list.
And what’s top of that list? Well, different councils have different powers and responsibilities. But for many the big problem is “the frightful four”: adult social care, homeless accommodation, children’s services and school transport. One council leader told me they were chewing up three quarters of his budget — and the cost was rising every year. As a result, such councils are having to cut back on the things many of their constituents prioritise, such as trimming the verges and keeping the waste and recycling centre open.
All four of these are not only very expensive but subject to strict statutory duties. If those councils don’t provide them, irrespective of their wider financial position, they will be taken to a court or tribunal. And they will lose.
As a result, everything else gets squeezed to make room. In the decade after the financial crisis, spending on children’s social care went up by 40 per cent. That is a huge extra burden, and those councils had no choice but to meet it — which helps explain why England lost a third of its libraries.
This story, in other words, is not about stinginess. In fact the state is spending an enormous amount on these children — more than £11 billion a year. I wrote in January about an awful care home abuse scandal in Doncaster. But the other scandal was that the council was paying £250,000 per child, per year, for them to be abused. The costs are so high because the market is broken. Yet councils have no choice but to pay them.
Then there is home-to-school transport. If your child has special educational needs (SEND), you can ask for an education, health and care plan to give them extra support. Since 2015 the number of such plans has increased by 170 per cent. There are, obviously, many children who genuinely need the help. But these plans are also the equivalent of a golden ticket. If you have one, the council is legally obliged to bend over backwards on your behalf, at the expense of everyone else. In many cases other rules mean they have to pay for taxis to drive you to school every day, which for some pupils at special schools can be up to 50 miles each way. And this is one of the few benefits that isn’t means-tested, so wealthy parents can claim too.
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As a result, county councils (which cover areas where people naturally live further from schools) are now spending substantially more on school transport than on Sure Start, family services and youth services combined. In some cases they are spending more on taxis alone than it would cost to send these kids to Eton. And those costs are, again, rising hugely. In the past two years alone spending on SEND transport for under-16s is up 30 per cent. Total spending is projected to triple over the decade.
There are all sorts of other pressures on councils too. In London one in 23 children are now in temporary accommodation. In one primary school in Peckham, as The Sunday Times recently reported, that applies to an extraordinary 81 per cent of pupils — 54 per cent of them legally homeless and rehoused by the local authority, the remainder sofa-surfing.
Increasingly local housing allowance, as announced in the autumn statement, will help with that. But so will building more homes. Yet councils in London are now having to spend £740 million a year on temporary accommodation for such families — again, a legal obligation — which is more than the budget for building the houses that could alleviate the problem in the long term.
Despite the alarming headlines, we may not see a slew of council bankruptcies in the coming year — not least since the government is more likely to offer a bailout with an election looming. There are also savings to be made by cutting waste, the focus of the new Office for Local Government, chaired by Lord Morse, former head of the National Audit Office (although it could do with a stronger mandate). And we could definitely make efficiencies by combining more councils into unitary authorities, even if political parties hate the idea because local councillors are often the only people who can be bothered to actually campaign for them.
But in the longer term we need to think very seriously about what we are asking — and legally obliging — councils to do. Or else the “frightful four” will swallow the system whole.
