Councils need an unconditional cash injection

By Jack Shaw | 09 October 2023

Jack Shaw looks at what the sector needs from next month’s Autumn Statement to avoid more section 114 notices, and what it should expect the chancellor to deliver

The forthcoming Autumn Statement on 22 November presents an opportunity for the chancellor to throw local authorities a life jacket to manage the perfect storm engulfing them.

There are a range of options available to the Government to provide local authorities with greater financial resilience. The swiftest is an emergency package of financial support – either in-year or a cast-iron commitment that additional help will be forthcoming as part of the Local Government Finance Settlement, traditionally been published in December.

This investment needs to be substantive and unconditional. Without action of this scale, there is a risk more local authorities will soon issue bankruptcy notices.

And worse, if Conservative-run authorities collapse this won’t serve the Prime Minister in the run-up to a General Election It is much harder to diagnose the challenges facing local authorities as examples of localised mismanagement if more authorities collapse under Rishi Sunak’s tenure that are Conservative-run. Hampshire CC is the latest authority – which has been run by Conservative administrations since 1997 – to issue a warning it is at risk of ‘financial meltdown’.

Despite this challenge, the Government has not signalled it is intent on investing in authorities to protect them from collapsing.

This is consistent with the approach the Department for Levelling Up, Housing and Communities has taken to date, which is prioritising intervention after authorities have collapsed – rather than financial support beforehand. It recently rejected Tandridge’s request for a capitalisation direction and intervened in Woking and Birmingham after they issued section 114 notices, despite its knowledge of their financial situation.

What should we expect from the Autumn Statement?

As we approach 22 November, the Government’s approach may change. This will in part depend on the headroom available to the chancellor – how much the Government can invest within existing fiscal rules and without raising taxes – but local authorities should not be too reliant on the Government to address their in-year deficits.

It is unlikely authorities will receive a generous settlement which can be spent on day-to-day services.

Yet there are levers available to the Government that may provide temporary relief, such as enabling local authorities to increase council tax.

The Local Government Association’s Conservative Group has called on the Government to abolish the council tax ‘referendum principle’, which currently requires local authorities to hold referendums if they wish to raise council tax by more than 5%.

And while the Government is unlikely to increase the threshold itself, giving local authorities the choice to levy higher council tax while encouraging them to exercise restraint may generate an electoral dividend.

Besides, the Government has increasingly broken its own rule by enabling Thurrock, Croydon and Slough to raise council tax by up to 15% without holding referendums. Without additional investment not insignificant numbers of local authorities may choose to increase council tax above 5%, which was common in the noughties.

New capital investment may also feature in the Autumn Statement – though it does little to protect day-to-day services.

It is not, for example, clear whether the final tranche of the Levelling Up Fund will be forthcoming – or whether it has been replaced by the ‘endowment style’ £1.1bn for 55 towns across England – but it is one vehicle for investment in communities that has not yet been ruled out.

The Government is also making good progress on devolution and a series of settlements will be expected to be announced at the Autumn Statement.

Deals for Essex, Lancashire and Leicestershire and Rutland are most likely, though new investment will be for combined authorities, rather than local authorities.

Both of these will enable the Government to provide investment within existing fiscal rules, and one interpretation may be that it serves the Conservative’s electoral fortunes to prioritise ‘spades in the ground’ over reducing service pressures because one is more legible to the electorate than the other.

Above all, the options on the table are unlikely to meet the needs of local authorities – and it is difficult to identify how their fortunes will be turned around without significant investment in the short-term, coupled with reform in the medium- and long-term.

This is unfortunate and, at root, these are political decisions: the Government bears significant responsibility for the state local authorities are in.

It will also not go unnoticed that, at the same time, the Treasury is reportedly negotiating with the NHS to address its £1bn deficit this financial year.

The NHS already has greater autonomy over its deficit and its ‘breakeven duty’ enables NHS trusts to balance their books over three years, or five, in exceptional circumstances, compared to a single year required by local authorities. The National Health Service Act has given NHS trusts this flexibility since 2006; local authorities enjoy no such luxury.

Jack Shaw is a local government expert


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Whitehall Finance Politics Policy Autumn Statement S114