A growing number of councils in England have declared bankruptcy since 2018, most recently Nottingham, Woking, Thurrock and Birmingham. With the situation in the devolved nations of the UK looking similarly precarious, the question of quite what has happened to local government finances in the UK is an urgent one.
A council cannot, technically, go bankrupt. But when its expenditure surpasses its income and it no longer has the funds to cover its statutory duties (of which there are over 1,200), let alone the non-statutory services it provides, it issues a section 114 notice. This entails no new spending commitments and developing a new budget within 21 days. The central government will often then appoint external commissioners to oversee the budget.
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Since the advent of austerity Britain in 2010, there have been severe cuts to council incomes. Our research shows how these have translated directly into worse lives for many people: tougher working conditions, statutory services provided on a shoestring and, ultimately, a retraction of the local state at a time when people need it.
Despite devolution of power, the UK has a highly centralised system of government. Central government exercises more control over local government than in many other wealthy countries.
On one hand this can enable redistributive economics, whereby centrally collected tax can potentially be shared in a geographically and socially equitable way.
Conversely, when central government substantially cuts local budgets, local government is often left unprotected. In addition, local government also operates under the impacts of other national policies, such as universal credit - changes which impact some areas of the country more than others.
How austerity was implemented
The 2008 global financial crisis saw governments the world over bail out failing banks. In the UK, at the peak of support, between 2007 and 2010, the government provided more than £1 trillion to support British banks in the form of guarantee commitments and cash outlay. Major recipients included the Lloyds Banking Group and the Royal Bank of Scotland.
When the Conservative-Liberal Democrat coalition came to power in 2010, it launched a programme of stringent spending cuts and tax increases. This was ostensibly aimed at reducing the debt the country had incurred by bailing out the banks and stabilising the international financial system. The chancellor at the time, George Osborne, went further, blaming Labour for the mess: “Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt.”
Osborne said he aimed to restore sanity to the UK’s public finances and stability to the economy. Many sociologists and geographers point, however, to the Conservative administration’s ideological zeal for shrinking the existing scale and scope of the welfare state, much of it delivered through local authorities.
Austerity cuts were applied to most government departments, but fell most heavily on the then Department of Communities and Local Government. Between 2010-11 and 2015-16, the latter had its budget cut by more than 50%.
The most deprived areas of England were hit the hardest. Between 2010 and 2024, areas including Hyndburn, Pendle, Great Yarmouth, Hastings and Burnley lost nearly half their funding. Many county councils such as Hampshire, Warwickshire and Oxfordshire were among the least affected areas. Metropolitan authorities saw their spending power cut by 24% while the drop for shire counties was only 7%.
Read more: Levelling up has been a total failure – here’s the evidence
As budgets were cut, there was a surge in demand for vital services, from adult social care to welfare and homelessness support. Between 2012-13 and 2022-23, the number of households living in temporary accommodation, including hotels and B&Bs, rose by an estimated 89%, to cost councils roughly £1.74 billion in 2022-23. Councils are putting homeless families in increasingly faraway locations. One council spokesperson recently dubbed this “a national placement policy” – the result, they said, “of the extreme shortage of accommodation in London and the south-east”.
Local government is responsible for a host of services, both statutory and discretionary. Statutory services include social care, environmental and regulatory services, transport, public health and cultural services.
In response to austerity cuts, local governments have attempted to reduce spending. This has included shutting youth centres, reducing support for local charities and only providing the most basic of maintenance for public spaces like parks. Between 2010 and 2019, almost 800 libraries closed, while others minimised their opening hours or increased their reliance on volunteer staffing. The UK now has more food banks than public libraries.
Elsewhere, councils have worked to generate new income streams. Some have set up commercial companies in order to sell their local services to other councils. The Norse Group, which was set up by Norfolk county council in 1988 but expanded significantly in 2008, is now the largest local authority trading company in Britain. It provides regulatory, care, maintenance, waste management and other services across a number of councils.
Some local authorities, including Thurrock with its ill-fated solar energy investments, have borrowed money to increase their investment income. While only a few councils have acted in this way, critics highlight that those that have spend an average of 15% of council budgets just on paying the debt interest charges.
Others have sold off publicly owned land and property, as a short-term and many have said, short-sighted solution.
Others have opted to stimulate the local economy and to invest in local infrastructure and community. Many Labour councils committed to paying living wages to their employees as part of their duty of care to local people. Others invested in stimulating the local economy, as demonstrated by Blackpool Council’s purchase of the iconic Blackpool Tower and now splendid Winter Gardens.
None of these responses, however, have been enough to patch up the tears in the local government safety net. A local authority going bust was unimaginable in 2010. It is now an increasingly commonplace reality. Clearly, the next administration will need to rethink what local government does and how it does it.