Tackling the £5bn “black hole” in local authority budgets

At what point does a financial ‘situation’ become a “crisis”? And at what stage in an ongoing financial crisis do reporters, such as Peter Walker of the BBC, choose to adopt superlatives such as a “black hole” to describe them? “A black hole in local authority budgets continues to grow, a BBC investigation reveals, prompting fears some will not be able to provide basic service” (Black hole in town hall budgets rises to £5bn – BBC News).

Black holes suck up all the matter that comes within their gravitation pull, even light, which is why we can’t see them. The average council now faces a £33m predicted deficit by 2025-26 – a rise of 60% from £20m two years ago. We don’t need a telescope or a degree in astronomy to see this black hole.

Councillor Shaun Davies, who chairs the Local Government Association (LGA), said inflation, the introduction of the National Living Wage, energy costs and increasing demand for services were adding “billions of extra costs just to keep services standing still”.  What is truly scary is that, according to the BBC investigation, local authority chiefs are expected to use up £1.1bn of reserves to balance the books this year. Bradford Council using reserves at an “unprecedented level” while Leicester City Council said it was going to run out during the next financial year.

Several councils have called for financial support from the government. Among them Slough, Croydon, Thurrock, Kensington and Chelsea, and newly created Cumberland and Westmorland and Furness councils will share around £393m in additional funding.

Thurrock declared bankruptcy in December 2022 but that was after a series of failed solar farm investments saw the council run up a £500m deficit – one of the largest ever reported for a council of its size. And at Birmingham City Council, Europe’s largest municipal authority, they have also effectively declared bankruptcy as they face a bill up to £760m for unequal pay claims that it cannot afford, and which in turn is costing them £14m a month.  The anticipated costs are more than the council’s entire spending on services for a year. Vital services safe – leader of ‘bankrupt’ Birmingham council – BBC News

So, in these two instances at least, the black hole is not just down to inflation and increased demand for services but historical questionable judgement.

While it is true to say that the government in Westminster has made more money available to councils in recent years the rising prices and the cost of delivering services for which there is growing demand means budgets remain squeezed. Local authorities are already cutting back on what they offer local communities. Where will the axes fall?

Where the council is not legally bound to provide a service is typically the first to see cuts such as parks, leisure centres and libraries. According to research by the Heritage Lottery Fund, reported on the UNISON website, 86% of council parks departments in the have cut budgets and 45% of councils are considering selling or outsourcing their parks. According to the Guardian Newspaper official figures show that £9,982 was spent per 1,000 people on libraries by central and local government in England, Scotland and Wales in 2022, down from £11,980 the year before. But its perhaps in adult social care provision that cuts will be felt the most. The current UK government confirmed earlier this year that the funding promised to improve the adult social care workforce had been halved.

One of the challenges that local authorities face is the ability to identify ‘quick wins’ in the attempt to save money and transfer those savings between cost centres. If, for example, £250,000 can be saved due to less vehicles and reduced fuel costs achieved through a waste & recycling collection route optimisation exercise, why can’t that saving be applied to extra spend for the local leisure centre?

I can just image a Head of Finance cringing while reading this thinking “they just don’t understand how Council budgeting works” but that leads to this point: In times of dire need, when there is a black hole, local authorities must do things differently, think outside of the box, and innovate to save money and redistribute those savings. Or they risk getting sucked into a financial black hole they can’t escape from without direct intervention from central government.