Inflation could push English councils into bankruptcy, leaders say | local government

Council leaders in England have said a multi-billion pound financial crisis caused by rising inflation could render local services unsustainable and even lead to the bankruptcy of local authorities unless the government takes action. provides emergency funding.

The cross-party Local Government Association (LGA) has said local services that were seemingly safe just three months ago are now at risk of being closed or cut as councils struggle to manage an unforeseen increase of 2, £4 billion of energy and payment costs.

Conservative LGA chairman James Jamieson said the impact on services would be ‘disastrous’ and hamper councils’ efforts to help people through the cost of living crisis at a time when demand for services was increasing, particularly in areas such as adult and child welfare, and homelessness.

“Rising inflation, energy prices and pressures on the ‘national living wage’ are putting municipal services at risk. Budgets need to be reset, with potential cuts to essential services people rely on, amid a cost of living crisis,” Jamieson said.

The LGA estimates that without adequate long-term funding – effectively a revision of the Spending Review Regulations agreed last autumn – the collective increase in inflationary costs facing English councils this year will be £2.4bn of pounds, rising to £3 billion in 2023-24. and £3.6 billion in 2024-25.

He argues that these pressures, which follow more than a decade of austerity cuts to local authority funding, pose a “serious risk to the future financial viability of some services and councils”.

Jamieson added: “Inflation is not going to come down overnight. As our analysis shows, the impact on our local services could be disastrous. It will stifle our economic recovery and undermine the government’s ambitions to turn the country around. »

The Guardian revealed earlier this month that the councils forecast a collective and unexpected £1.7billion shortfall this year due to inflation. The LGA has updated it to include estimates from England’s 181 district councils, along with additional analysis of the impact of National Living Wage increases.

When budgets were set earlier this year, councils typically assumed an average salary and inflation costs of around 3%. However, inflation is now at 9%, with the Bank of England predicting it will reach 11% by October.

Boards are required by law to balance their books each fiscal year, which means that the correction of financial deficits cannot be deferred. This will likely lead to job losses and the abandonment or postponement of construction projects such as new schools or regeneration programs. It could also result in cuts to services, from libraries and recreation centers to road repairs.

Chart showing rising costs English councils are facing

John Boyce, the Liberal Democrat leader of Oadby and Wigston Borough Council in Leicestershire and an executive member of the District Councils Network, said: “This could push some councils over the edge, or they will have to make drastic cuts. It’s hard because we’re already cut to the bone. The cuts mean staff and staff are equal to frontline services.

Lisa Nandy, Shadow Leveling Up’s Secretary, Housing and Communities, said: ‘There is a crisis on the horizon. The cleaners, caregivers, trash pickers and other municipal workers who have kept this country alive during the pandemic and who are now struggling to feed their families deserve a pay rise.

“But councils have seen billions of dollars cut from their budgets over the past decade and are now facing billions in additional costs due to soaring inflation. They cannot square this circle alone.

“Ministers are the only people who can get everyone around the table and find a solution to protect vital council services. They must do their job urgently to avoid even more chaos.

A government spokesperson said: “This year we have made an additional £3.7bn available to councils so they can continue to deliver key services, and we are working with the sector to understand the impact of emerging challenges.”

However, the LGA, which hosts its annual conference in Harrogate this week, said inflation had already eaten away at this year’s increase, and with the lion’s share of the three-year spending review increase falling in 2022-23, the councils would be even more exposed in the years to come. It estimated a net funding gap of £1.4bn this year and £3.4bn next year, rising to £4.5bn in 2024-25.

Anne G. Cash