The Public Accounts Committee has issued an unusually stark warning about the finances of local government in England. It has said in a new report:
Local government finance is in a perilous state. Despite a real terms funding increase in central government grants, council tax and locally retained business rates of 4%, over the period 2015–16 to 2023–24, the amount per person fell over the same period. Funding has not kept pace with population growth, demand for services, complexity of need, or the rising costs of delivering services.
The result is that councils are going bust. It is thought that half may be at risk of doing so.
What, however, is collapsing is not just the financial management of local government. It is the very idea of local democracy, the principle of local care, and the state's ability to deliver public services that people need that is as risk. The threat goes far beyond finance.
There are a number of reasons for saying this.
First, the services now under threat are those most vital to people's everyday lives. When councils issue a Section 114 notice, effectively declaring bankruptcy, the law restricts them to spending on statutory services. The consequences are stark:
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Adult social care becomes threadbare. Visits are reduced, thresholds for care are raised, and staffing becomes dangerously thin.
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Children's services are cut back, with preventative interventions removed, creating risk for the most vulnerable.
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Libraries, parks, leisure centres and youth services, where they have survived to date, essentially disappear entirely.
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Bin collections, street cleaning, road repairs, planning departments, building control and even public toilets all face neglect or outright abandonment.
I cannot be alone in thinking these are not luxuries. They underpin the infrastructure of everyday life for many.
Second, the financial risks are now systemic. This is not about rogue councils and their mismanagement, although that has happened. Instead, as the PAC notes, the sector faces “rising demand, falling reserves, and unsustainable reliance on unstable income sources.” What this means is that:
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Demand for services, and most especially social care, is rising fast as populations age and poverty deepens.
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Reserves have been run down year after year to plug holes in funding, with many councils now having little or no reserves left to cover shortfalls.
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Some councils have gambled on volatile commercial income (such as property speculation) to try to raise funds to tackle these shortfalls in funding, with disastrous outcomes in some cases.
This is a vicious circle. The more services are cut, the more needs go unmet, and, as the PAC notes, the more costs rise in the long term.
Third, as the PAC suggests, current risk management frameworks are not now fit for purpose. The government has, in effect, told councils to “be prudent”, but it has then forced them into imprudence because of a lack of adequate funding. The result has been the sale of assets, property speculation, and underfunding of services that will most likely generate future liabilities.
This problem has been compounded by the government's so-called Office for Local Government having no real power. Even the Section 114 process itself does not fix the problem. It stops the spending but does not tackle the underlying issues, not least because emergency government support, if it is granted, is too often conditional on cuts. The result is that failing councils simply remain under crisis management, but problems are not addressed.
Fourth, and vitally, there is a poverty-related dimension to all this. The collapse in council services will hit the poorest communities hardest. Those with the fewest resources, whether they be financial, social, or political, rely most on local public services. These people are being failed because councils are being allowed to fail. The consequence is that some of the poorest communities will now suffer the worst long-term outcomes from these failures, including worse health, lower educational outcomes, greater inequality, and weaker social cohesion.
This is not, then, just a fiscal or financial issue. It is a moral failure. And in political terms, it creates a breeding ground for support for the far-right.
The PAC suggests the following needs to be done (and I am summarising from their recommendations):
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Immediate emergency funding must be made available to councils on the brink of failure, with no strings attached that require further cuts to services.
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A new financial settlement must be created for local government that is based on need, equity, and stability, and not unpredictable bidding for limited funds that has become far too commonplace, and crisis management
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New independent financial oversight should be introduced to monitor risks across the whole system and across the entire sector. Given the failure of local audits after their outsourcing to the private sector, this is now essential.
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Long-term investment in prevention must be prioritised, particularly in social care, children's services, and housing, or problems will continue and social risks will remain.
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Council tax reform is essential. Not only does the system need reviewing, but so too does the way in which caps work need to be reviewed, and other forms of funding need to be reviewed at the same time.
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The government should fund the cost ot local authorities of national insurance increases, which they are unable to bear and which are heavily impacting their ability to supply services.
I believe in local government.
I believe in local democracy.
Both are in crisis and face existential threats.
As the PAC makes clear, urgent and deliberate action is now needed to restore the essential public services local authorities provide whilst rebuilding local authority financial resilience, and repairing the democratic foundations on which they depend.
Will Labour do that, or is the end of local democracy and the services on which so many depend a price Labour think worth paying to balance Rachel Reeves' books? I fear it is. And that massively troubles me, because Reform will seek to fill the void that will be created as a result.
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Local Authorities in S114 are told by the Treasury, sack staff, you will only get financial help after you have sold all your assets.
Result massive losses following asset sales, but still in debt. Some owe £2.2bn. Total it up nationally and we are looking at billions.
The response by the unitary authorities in debt? They are creating new town councils, transferring assets. Which will leave the residents being hit with 5% annual increases of Council tax paid to the unitary authority plus new annual town council precepts to fund services transferred.
Central government created the financial mess with austerity and now has washed its hands of the problem.
The latest round of local government creation of new unitary authorities is solely driving by slashing staff numbers.
Yes local authorities services are being gutted.
An element of the problem is that services that the Local Authorities used to provide care now all outsourced in large part to greedy private equity companies who provide “care homes” for children and the elderly at inflated prices. Apart from the long term aim of better preventative programmes Private Equity and Hedge Funds should be excluded from the provision of any sort of “care”. Then there is the outsourcing of all the “back office” services to the likes of CAPITA. The private sector has been sucking the blood from Local Authorities for years.
Thank you, Ali.
Mrs Smithers, aka mum, works as a local government auditor. She retires next spring, aged 81.
Mum is disgusted by not just the looting, but the corruption, too. She says she came across her first case of corruption in 1975, not long after being seconded to the newly created department of the environment from the Treasury. Mum joined the civil service from the City in 1973.
One detail that’s often overlooked (sometimes deliberately, sometimes in ignorance): public libraries are still a statutory service.
But massively under-resourced
BBC Scotland day-in-day-out conducts an atrocious, incompetent form of questioning on financing of welfare when interviewing Scottish Government ministers. The BBC questioning always presupposes that the financing of welfare in Scotland is financially “unsustainable” when it departs from British Government policies.
This is false, and the BBC either knows it is false, and is too incompetent to be fit to do its job. The Scottish government is provided with a budget by the British Government. It has no choice but to balance its budget, because the very limited tax and borrowing powers it possesses under devolution are deliberately restricted (income tax is supposedly devolved, but it has no power at all over the key instrument of income tax, the tax thresholds – the power currently devolved on income tax is not just limited, it is a cynical ‘poisoned chalice’). The Scottish Government is as restricted by its need to balance its budget, than a local authority; and over the SNP’s management it has always balanced its budget. The political cost of failing to do so is too costly to fail, for a Scottish government to contemplate.
Now look at the British Government. It says its prime purpose is to balance the budget it sets for itself (without restraints, except its own self-made fiscal rules). It sets a budget and then invariably (invariably!) fails to balance its budget every single year. It doesn’t just fail, according to its fiscal rules, it fails disastrously every single year according to its measure of success. It says we need to cut the National Debt. It has increased by around 180% over the last 15 years. Most of it under financial austerity – to ‘balance the books’. That is a definition of incompetence. You do not change your decisions or policies, and fail constantly. British governments under conservative and Labour are unfit to govern (watch this LBC interview of a minister on a specific piece of infrastructure investment here: https://www.lbc.co.uk/news/exclusive/treasury-minister-lower-thames-crossing-nick-ferrari-interview/): QED.
And nothing ever happens. It not only fails its own rules, its does so badly, and impoverishes millions, makes atrociously bad investment decisions on a monumental scale; and now faces a housing stock that is the worst in Europe, and an infrastructure so depleted and eroded of investment, it is literally disintegrating (water, rail, roads, energy, defence, and on and on); a Government overwhelmed by forty years of gross underinvestment, and simply cannot cope with the scale of deterioration it now faces. The amounts it is investing, let us be clear; do not even scratch the surface of the shortfall we face, or the economic hole we are now in. It is, therefore not even trying to fund the blood scandal, the Post Office failure, the WASPI women, and on and on; the gross failures for which it, and the Parties and politicians are directly responsible.
BBC Scotland is both cynical and incompetent in its journalism; just like the British governments it serves so unctuously. I have had quite enough of this abject intellectual squalor for one lifetime.
Thanks John
You have given me the idea for a National column
Having worked my entire professional life in an area where the role of local government featured heavily, it is my firm belief that it has been a long standing policy of Whitehall to destroy local authorities and, consequently, the last vestiges of local democracy. This policy has been pursued by both of the main parties. It is all about the centre (I.e. Westminster and Whitehall) taking control and to hell with notions of local democracy. Over time, functions of local government have either been centralised or privatised. It is only those areas that can be politically controversial – like planning – that have, until now, remained with local politicians who then face the public fury when unpopular decisions have to be made. Even that is now being changed in pursuit of the mythical growth agenda. At the heart of this destructive policy is the Treasury. You need look no further than Gordon Brown’s Planning Act 2008 changes following the Barker Review for evidence. And by the way, nearly 20 years later the housing crisis continues and much needed infrastructure remains either unmaintained or undelivered. Nothing good will come of this policy. In my opinion there is too little, not too much, democracy at the local level.
Slightly off-piste – Simon Jenkins squirrelled out the estimated £100bn cost of HS2 between 2025-35 and asked why he hell it hasn’t been cancelled. Some of it could be directed to councils instead? Also stop paying £bns interest to banks on govt-created money as you have suggested and fund local govt instead.
More (probably realistic) gloom from Tim Watkins this morning: –
https://consciousnessofsheep.co.uk/2025/06/17/the-end-of-the-road/
Links into local government collapse.
Ever since Margaret Thatcher, the aim has been to privatise all aspects of local public services, and sell off all the assets. This results in the rich getting even richer, and the privatised costs of services increasing (someone has to pay the profits), and worse services (better services eat into profits).
This is happening to water, energy, refuse collection, and the National Health Service.
This is neoliberal policy, followed by every government since Thatcher.
Read: “The Invisible Doctrine: The Secret History of Neoliberalism (& How It Came to Control Your Life)”
(2024) by George Monbiot and Peter Hutchison. https://amzn.eu/d/1BvdngG
Agreed
Thank you for the, to finance vultures, good news. The plan is working.
In 2023, I heard the shadow Treasury and Business teams explain how they see the role of central government as ensuring all the levers are pulled in the same direction and that of the private sector as providing services and infrastructure, overseeing delivery, planning, standards etc. and delegating staff to all levels of government.
Richard and readers may be aware that, in the US, some techies have been seconded from Silicon Valley to the military. That idea has been in the mind of Blairites and Cameroons for a dozen years.
Private sector vultures, often offshoots of Wall Street, are making money from local government in education, social care and services, highway and building maintenance etc. Council staff have been ordered to pay invoices without delay and question.
Someone very close to me has horror stories about the looting.
When local authorities go bust, the looting won’t be mentioned. Public sector profligacy will be blamed. More privatisation will be the answer. As I said above, the plan is working.
We’ll soon get a war in the middle east for distraction. The same investors will make money, unless it goes nuclear and we all die.
Yes, as someone who works in LG, that is the plan.
To do that, they are creating the new ‘combined authorities’ to make mega Councils, and turn these into corporations of extraction. There will a huge push on making costs savings, redundancies, economies of scale etc.,, then one day in the future they will realise that it is all too big and it needs to be made smaller again.
But then again, perhaps they will not and this is what we will be left with for ever more. AI will help to ensure that I am sure. Working in LG at the moment is like being on a turkey farm – with far too many of us voting for Christmas. Some of these people think life is wonderful, working at home, blah blah and I think there is a rude awakening coming.
Nicholas Ridley maybe dead, but he is still winning.
That is a ghastly, but true, last line.
Thank you, both.
Mum was unfortunate to work with Nick Ridley. I was unfortunate to work with his nephew, Matt.
And you have survived…
What happened to Gordon Brown’s report on decentralisation?
https://labour.org.uk/wp-content/uploads/2022/12/Commission-on-the-UKs-Future.pdf
At one point, inadequate as it was, it was being touted as Labour’s big plan for empowering local government, and seemed like the only way they were planning to change anything at all. Even that has apparently been forgotten.
That feels like a blast from the past
Seems to me that I’m very lucky to live in Liverpool. Some days ago someone came to visit from local Social Services (I think the Nurse who came to do a yearly check on me and to order blood tests asked for the visit) and declared that I should have stair-lift and a rise-and-fall seat for the bath. The bath riser thing arrived yesterday! Might try it out tomorrow.
Someone’s coming on Friday to look at our stairs to make sure they’re suitable for a stair-lift, and to measure it up if the stairs are suitable. No charge whatsoever – which really surprised me. So far as I know, Liverpool isn’t a particularly affluent Local Gov – remember when Heseltine was brought in because the Council had made such a mess of their finances?
It’ll be magical to get up and down the stairs easily, assuming it happens – I’m not getting my hopes up too much just in case. It’ll open up a whole other floor of the house to me, and by preserving energy, I might even be able to get into our back garden! That’s somewhere I haven’t visited for over 2 years. Just the thought is exciting, as husband has planted so many things since I was last out there!
I feel dreadful about all of those people who need help, but aren’t getting any. (Crying Face emoji) All I can hope is that all Councils will get more cash from Reeves. Yeah, some hope, I know! (rolls eyes)
On a slightly different subject I saw Reeves speaking in Parliamentary Questions today. Very depressing. Currently recovering from that by listening to Tom Petty on Amazon Music. Was cheered when the second or third song was I Won’t Back down!
Great song.
Pleased some things are going well, Maggie.
In North East Bylines.
https://northeastbylines.co.uk/news/politics/walkers-20-million-what-does-it-really-mean-for-the-community/
What the headline forgets to say is that it’s £20 million over ten years. Not many houses or jobs out of that.
Agreed
I posted a comment to an earlier discussion about democracy on 10th November 2024, see https://www.taxresearch.org.uk/Blog/2024/11/10/78602/#comment-993578
Nothing has changed since then.
The local government failings are huge. People are being driven out of democratic engagement.
At the root is absolute power, epitomised by the Treasury which rules over all other departments of State.
Extreme centralisation amplifies absolute power. Until the UK sweeps away the whole Westminster / Whitehall establishment, there will be no improvement. The likely course of events over the next thirty or so years is grim:
1. More debt and poverty issues.
2. Northern Ireland votes to reunite with the Irish Republic.
3. Westminster then cannot refuse Scotland its independence referendum. Scotland leaves.
4. What is left of the UK tries to rejoin the EU and is blocked by a Spanish veto over Gibraltar. At least England will then strip itself of its imperial delusions.
5. Another financial crisis, maybe more than one, proximate cause greedy private equity and hedge funds that have over-borrowed. It will be a new turn, perhaps more than one, of the central banking economic cycle. Central banks now drive the economic cycle, through expansion and contraction of the credit supply (QE followed by QT).
6. The slow rise in the proportion of GDP spent on debt servicing (currently about 21% globally) will continue to dampen economic activity. Debt cannot expand to infinity because in such a world, interest paid by borrowers would also be infinite, leaving nothing for food and shelter.
Britain has a faux democracy in which tribes compete for absolute power. It’s based on the 1662 restoration of the monarchy, and utterly unsuitable to the twenty-first century.
So, what is to be done?
Change has to come from thoughtful people, but ideas are blocked by the mainstream media who are happy feeding off central power.
To solve the problems of local government, it must raise its own taxes and decide how to spend the money. Ditto for national governments (which should all be equal). This raises the issue of unequal living standards. So there needs to be funding redistribution at every level of government to meet democratically-agreed living standards: an automatic annual transfer rather than endless funding formulas that are manipulated by politicians.
Then how do equal national governments and equal local governments coexist? With a modern written constitution that lays down the principles. In such a world the “Crown in parliament” definition of sovereignty would become “Each nation is sovereign” and the UK government would be limited to foreign affairs, defence, and common standards.
This would open up a route to sweep away the House of Lords and the Privy Council. The latter makes legislation (“Orders in Council”) with zero democratic input. Replace them with an elected People’s Council able to set its own agenda. The endless array of scandals could then be exposed at much earlier stages.
This leaves two gross problems: political lies, and poor education. The first can be dealt with by a constitutional requirement that all government and political communications, at all times, be “clear, fair, and not misleading”. That is in the Financial Conduct Authority’s rule book for UK financial promotions. If it’s good enough for finance, it’s good enough for the country. The second will take time because educational standards are not high enough in the broad sense, as opposed to intense specialisation. But remove central control and the nations and regions could start to compete with one another. Let’s call it “cooperative competition”.
Richard, there are plenty of ideas in Reinventing Democracy for future columns. Including creating a path for the non-English nations to choose independence, without Westminster’s say-so, which would stop England treating them as colonies.
Where is Reinventing Democracy? Might you share for all our benefits?
Some of your predictions make sense.
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Thanks
If David Powell (europeanpowell@substack.com) is right, then all local authorities will disappear when Freeports and Special Economic Zones turn our so-called democracy into a 21st Century fiefdom, and wealthy elites will have complete control of the country. Most of us will be nothing more than serfs and we’ll have no rights at all. I just hope that David is wrong. What are your thoughts on Freeports and Special Economic Zones and how they might impact on us all?
https://mail.google.com/mail/u/1/#label/Politics%2FEuropeanPowell/FMfcgzQZTMPJtRrvsjqlkhHtwRgpJVjs
I think he is wrong.
And just google Richard Murphy freeports to find what I think
https://www.google.com/searchq=richard+murphy+freeports&oq=richard+murphy+freeports&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIHCAEQABjvBTIHCAIQABjvBTIKCAMQABiABBiiBDIKCAQQABiABBiiBNIBCDQ5MDhqMGo3qAIAsAIA&sourceid=chrome&ie=UTF-8
After suffering two redundancies from the abolition of two county councils, I eventually found myself teaching an MA module on English local government. Students were mainly foreign, sent here because they could, supposedly, learn about ‘best practice’! In fact, they were usually appalled to learn just how fragile and unstable our system is, subject to frequent and arbitrary ‘reform’. They were used to systems that were constitutionally guaranteed.
That was in the era of Blairite ‘target mania’, and the situation has got immeasurably worse since then.
Contributors who have written of the contempt in which Whitehall holds local government have it just right. And the current plans are par for the course. Is there any sign, by the way, of ‘Freeports’ and ‘Charter Cities’ notions being put where they belong by LINO?
Labours has embraced freeports.
We have no charter cities.
Richard and others great comments re Local govt/democracy and our over controlling centre.
Ages ago I came to the conclusion local democracy and govt isn’t safe in the hands of our national or UK politicians and civil servants. Or indeed large corporations.
We have no constitutional protections for villages, town councils etc and central govt controls all funding and obligations.
The system of local people deciding on local affairs is broken.
The power of the state must either be rolled back from villages, towns, cities and counties or left to central govt.
Most people don’t care they have grown up with an all powerful centralised state. They have become used to failure and lack of agency.
What is to be done if you believe people should have local democracy?
Give people an opt out in the form of a referendum on whether to stay as is or opt to leave govt funding and govt driven obligations for care, education, roads etc.
If local people opt out the will be like a Swiss canton or say a Guernsey. More or less completely responsible etc, except for defence, national infrastructure etc.
They would then own and be responsible for, local infrastructure, energy, waste, public facilities, education, health, policing, immigration the whole lot.
Obviously there are significant transition issues including the need for transition funding but for those that opted out from central govt they could now tackle local affairs in a way that suits them.
Many variations would result and there would be failures too but a chance to be free from this onerous neoliberal form of govt that strangles innovation, freedom and community spirit of all it touches.
Lots of holes in the proposal and I can imagine some people recoiling in horror, screaming unfairness, post code lottery etc but I’m a great believer in people.
We need to rebuild our abilities and capabilities of working on local issues as finding as a community or a small group of communities.
Since the end of WW1 we have seen a vast expanse of the state and much of it was welcomed but maybe now a more commune or socialist approach would be better.
I confess I have no real idea what you are arguing for. Might you make it clearer?
Local democracy can only happen if local people are prepared to participate.
Where I live there is a wonderful local community centre. It does a huge amount of good. But it is run by a tiny number of people, most of whom are well over 50. Indeed, many of them are over 66. Younger people use the facilities, but none of them is interested in being involved.
The same problem prevents local democracy. Is it local democracy if fewer than 10% of the local population vote and only about 1% participate?
This has always been the case.
Older people always run things.
That’s life.
It will continue.
Richard, apologies if the comment seemed confused.
I’m saying the following in summary:
1. Our current way of governing locally is dreadful. I agree. Its a play thing for national politicians. It needs to be recast and protected like the Swiss canton.
2. I passionately believe in local people making the decisions on local affairs.
3. My definition of local affairs is broad and encompasses a great deal that Westminster/Whitehall controls directly or through funding rules. Examples of more local control would include, all of education, health and care. It would include the local economy, policing and the other emergency services. It would include water, energy, transport, communications. So very extensive and those who aspire to be politicians would be interested I’m sure.
4. I think local affairs needs to interact with the national state but the connection can’t be via funding. That would create the mess we have now. Local democratic government will be able to raise taxes/service charges on individuals/businesses.
There will be no funding from central govt. National taxes would be hopefully much smaller as more transition.
5. These local democracies will need constitutional protections from the vagaries of the HoC and the Civil Service. The latter will operate nationally only and concentrate on national matters eg Defence, Foreign Affairs, National Infrastructure etc
6. There needs to be a transition and agreed levels of funding for it. Access should be triggered to both by a referendum that meets the thresholds of participation and ensures that people understand they are voting for minimal involvement with central govt. If they vote yes they are now working towards full accountability for local affairs. They will have agency to tackle local affairs. They may team with other communities to tackle things like local energy needs.
7. Not every area will be affluent. I expect plenty to be poor as many already are. So they need to raise taxes locally and issue bonds for various investments & programmes that will be needed. There will be a bond market for these local democracies I’m sure and this will need separate regulation for participants.
8. There will be plenty of challenges but local people working together will I’m sure make a better fist of things than the Westminster and Whitehall combo we have had for years.
So my local democracy is comprehensive and for those that go that way they transition to being more free to tackle local matters without the diktat from the state.
It occurs to me we might get little neoliberal strongholds. With the likes of them being praised by the right wing media but we also likely to get more communitarian and socialist ones too.
Such variety will be a breath of fresh air into our stale national politics.
I hope this now makes more sense.
Eric
It makes sense, but I have to disagree.
We are a country of massive regional differences in income and wealth and your system would make that very much worse so funding hass to be key to this.
Richard, I agree regional inequalities would be worse at first and there would always be some variations in a free society where geography varies.
However my hope would be in time this would reduce as local democracies collaborated and they became a real alternative to doing politics.
My hope re Cyndy’s comments is the more local democracy is accountable for more things not just agents for the Westminster the more local people would engage.
Nieve perhaps .
I am afraid I think that is naive. Sorry.
There is another way of solving severe regional inequalities without central Treasury control, and I think Eric Smith has a point about local democracy being in control of its own destiny.
A better solution is to democratically agree a minimum GDP/capita as a proportion of the national mean, say 98%. Then create automatic transfers between governments to achieve this, recalculated annually according to economic output and population.
The percentage would need periodic reviews, say at 5 or 10 year intervals and could be adjusted if any national or local government systematically gamed the formula.
To do this you need a written constitution because the transfer mechanism would have to operate between England and the three other nations, then within the nations between national governments and first-tier local authorities (or possibly regional governments, there’s a thought) and again between tiers of local authorities, all the while operating across all authorities at the same level.
It would rejuvenate local government and break Treausry control.
How can you agree 98% as proprtion of a mean?
That is enforced equality of a type I do not think would remotely acceptble to most in the UK right now.
What am I missing?
Determine the mean first then calculate transfers from better off to below 98% to bring the worst off up to 98%
You just can’t work with such a narrow band. That would be impossible.
How about 90% then?
Set a goal of improvement.
Much more realistic.
Just keep trying to improve.
Isn’t that what life is always about?
Agreed
I am going to set up a “proposed changes to the first-draft constitution” web page in the next few days and your point will start it. May I please quote your name and link to the blog?
Of course