Ministers must urgently inject £4bn into English town hall budgets to head off an “out of control” financial crisis that threatens to drag well-run councils into bankruptcy and put local services at risk, a cross-party group of MPs has warned.
The levelling up, housing and communities committee said government must act now to help councils stricken by shrinking resources and the costs of rising demand for adult social care, child protection, homelessness and special educational needs provision.
It said the current local government funding system was broken and that the next UK government must conduct an urgent review of what councils do and how local services are paid for, including an overhaul of “outdated and regressive” council tax.
The committee’s inquiry report follows growing evidence of “financial distress” in local authorities. Eight English councils have declared themselves in effect bankrupt since 2018, including four in the past 12 months, while many more have signalled drastic spending cuts as they attempt to avoid potential insolvency.
A recent Guardian investigation has revealed how English councils are planning to increase council tax bills by £2bn from April, while looking to slash “non-core” services and jobs, and sell off land, buildings and other assets, in an attempt to balance their budgets after more than a decade of cuts.
The committee’s chair, Clive Betts, said: “There is an out-of-control financial crisis in local councils across England. Councils are hit by a double harm of increased demands for services while experiencing a significant hit to their real-terms spending power in recent years.
“The government must use the local government financial settlement to help bridge the £4bn funding gap for 2024-25 or risk already strained council services becoming stretched to breaking point. If the government fails to plug this gap, well-run councils could face the very real prospect of effectively going bust.”
Last week the government announced a £600m boost for English councils – most of it earmarked for social care services – after a threatened revolt by Tory backbench MPs angry that local services were being slashed while council tax was rising. Councils have warned the extra cash would not tackle the underlying financial problems.
Although ministers have sought to portray failing councils such as Woking, Birmingham and Nottingham as one-off victims of poor management and reckless investments, the committee’s report says years of underfunding have created a “tipping point” for many councils across England.