black bin-bags ahoy…
We’ve all witnessed what exactly is going on in Birmingham wrt their bin-collection services but, across the whole of England, and across the current political spectrum, local councils are suffering grave financial problems. Which begs the question, can a council actually go bankrupt? Short answer, no. However…
A council can’t shut-up-shop in the same manner a business can as they have certain essential services they are legally obligated to provide, from social care to road maintenance, from bin collections to aspects of social housing and schooling. But a council can nonetheless find itself in the precarious situation where it does not physically have the money to cover its budgets commitments for the year. In this scenario, it issues a 114 notice and since 2018 eight councils have issued one, including Birmingham City, Thurrock, Woking, Nottingham, Northumberland, Slough and Croydon.
Owing to austerity, central government grants, which typically account for around a quarter of council income, were cut by 40% in real terms between 2010 and 2020. With poll tax rises limited to 2%, The Institute for Government estimates this resulted in a fall in real spending of over 30%. Yet at the same time, demand for council services, particularly social care and social housing, has gone through the proverbial roof. Factor in Covid and recent inflation and it isn’t a pretty picture.
In an attempt to counter this, several councils have attempted to invest, or rather, speculate their way out of debt. Nottingham set up an energy company, Robin Hood Energy, that continues to lose millions. Thurrock invested #655m in an overvalued solar company that shows precious little return. Woking racked-up a massive #1.2bn deficit (the equivalent of #19,000 per person) by making risky investments in town centre tower blocks and hotels. Birmingham itself lost #100m on a botched IT project.
Once the local authority has issued a 114 notice it cannot commit to any new unauthorised spending. However, since it is legally obliged to provide core services it’s the ‘discretionary’ ones, such as sports, leisure, arts and youth services that face to brunt of cuts and suffer. Councils do try to raise more cash by hoicking-up council tax, business rates and local parking costs, or sell-off assets, but it’s often akin to the little boy’s finger in the dam. Council tax is legally limited to a 5% annual rise but several have asked for double this over the next two years. Unsuccessfully so to date.
Admittedly, the situation has been improved slightly by a better financial settlement from Westminster for 2023/4 up 9.4% and with a #3.8bn grant for social care, but things are going to remain so tight that we can all expect already strained-services to be spread even more thinly. Stock-up on those heavy-duty black bin-bags and rat-poison is in my advice.
