Quarter of English Town Halls Likely to Need Bailout, Poll Finds

(Bloomberg) — A quarter of town halls in England are likely to need emergency bailouts from the UK’s central government to avoid bankruptcy in the coming years, according to a survey of council chief executives that lays bare the parlous state of local authority finances.

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Chancellor of the Exchequer Rachel Reeves should take action in her budget next week to prevent a fresh wave of councils going bust after many ran into difficulty in recent years, the Local Government Association, which conducted the survey, said Tuesday in a statement.

A funding deficit of more than £2 billion ($2.6 billion) next year will push a swath of local authorities to ask ministers for “exceptional financial support” next year, the LGA said. This is colloquially known in the sector as a bailout and allows councils to use asset sales and money raised through borrowing for capital projects to plug the hole in day-to-day spending.

The warning adds to pressure on the public purse at a time when Labour’s Reeves is already trying to fill a £22 billion black hole in the country’s finances that she says was left by her Conservative predecessor, while also raising more money to pump into struggling public services at next week’s budget.

Council budgets have faced severe pressure in recent years due to high inflation, a surge in demand for social care services and a plunge in government funding since 2010. Three councils — Birmingham, Nottingham and Woking — issued section 114 notices declaring bankruptcy last year, while an additional 16 agreed bailouts for 2024/25.

Some 1 in 10 councils have already discussed seeking the emergency measure, while 25% said they are likely to apply for one in either the 2025-26 or 2026-27 tax year if more central government funding isn’t forthcoming, according to the LGA survey. Some 44% of councils with social care responsibilities said they are likely to apply for the support.

“Many more councils are being pushed into a precarious financial position,” said LGA Chair Louise Gittins. “The autumn budget must provide councils with the financial stability they need to protect the services our communities rely on every day.”