Leaders of Tory-run county councils demand changes to funding or statutory obligations, warning of potential bankruptcy

The leaders of two Tory-run county councils have warned that without some immediate help and a clear plan for long term financial sustainability, their authorities are likely to be considering Section 114 notices “within the next year or so”.

In a letter addressed to the Prime Minister, the Chancellor of the Exchequer and the Secretary of State for Levelling Up, Housing and Communities, Cllr Roger Gough of Kent County Council and Cllr Rob Humby of Hampshire County Council said they were writing jointly “to highlight in the strongest terms, the financial crisis facing upper tier local government over the next few years”.

The letter comes ahead of Chancellor Jeremy Hunt’s Autumn Statement this week, which is widely expected to see increased taxes and a squeeze in public spending to fill a gap in the public finances.

The two council leaders noted that they were facing budget deficits over the next few years on “a scale that has never been seen before”. They added that they fully expected to see more failures in the sector over the coming year, unless there is legislative change to revise councils’ statutory obligations to match the reduced level of resources, such as flexibilities.

The letter outlined that the additional money that councils can raise from council tax and business rates “barely covers” the normal inflationary pressures that they face each year, which leaves significant growth, (particularly in adults’ and children’s social care) “totally unfunded”.

Cllrs Gough and Humby claimed that without a fundamental change either in the way in which these two services are funded, or in councils’ statutory obligations, all of upper tier local government “will soon go over the cliff edge”.

The letter highlighted how this year’s inflation, as well as the forecast for next year, was well above normal levels.

The two council leaders called for legislative change, which they argued was “long overdue to reform out-dated and under-resourced statutory obligations”.

They used the “Home to School transport provision” and the “requirement to provide a comprehensive library service” as examples of "outdated" statutory obligations, which are based on legislation from the 1940s and 1960s respectively.

Cllr Gough and Cllr Humby said their authorities were both looking at how far they could go in closing their future budget deficits both revenue and capital. However, they said that whilst there were some options for generating savings, most of these were going to be “very unpalatable and will impact on some of the most vulnerable in our society”.

They added that even with these drastic cuts to services, they did not believe they could close their future budget gaps, based on current forecasts and would need to consider entering into formal talks with their auditors, DLUHC and Treasury over the coming months.

Calling for fundamental changes to the funding or expectations – “or both” – of local government, the letter requests the following from the Government:

• Annual increases in funding that match the growth in adults and children’s social care services or legislative change to reduce the demands on the service.
• Full funding of the Social Care Funding Reforms and Special Educational Needs growth, “both of which are new burdens imposed by Government”.
• Freedoms and flexibilities around council tax setting and charging for services.
• Legislative change that can help local government help itself.

Cllr Gough and Cllr Humby concluded: “Whilst we fully recognise the difficult national economic environment, we cannot sit by and let two great counties sleep-walk into a financial disaster and we would welcome discussions with Ministers, our MPs and Government officials as soon as practicable, as we have to finalise our budget by mid-December at the very latest.”

Last week the County Councils Network warned that only one in five county councils were confident they could meet their legal obligation of setting a balanced budget next year.

Council leaders warned that “everything is on the table” in reducing local services “if the Chancellor does not spare councils from further cuts and provide more funding for local government” in the Autumn Statement as they faced £3.5bn of additional costs this year and next.

The Department for Levelling Up, Housing and Communities has been approached for comment.

A DLUHC spokesperson told The Guardian: “We understand that councils are concerned about the impact of inflation and we are working with them to understand how this will affect their budgets. This year, we have made available an additional £3.7bn to councils to ensure they have the resources to deliver vital services.”

Lottie Winson