Early Bankruptcies

Even before the pandemic, Britain’s housing crisis precipitated a huge rise in street homelessness for which—after the Homelessness Reduction Act of 2016—local authorities are now statutorily responsible. Local authorities have also seen huge increases in demand for free school meals as child poverty has risen, and discretionary support services in local authorities are now completely oversubscribed due to welfare ‘reforms’ like the bedroom tax and Universal Credit, which have thrown many claimants into destitution.

Several years ago, Abi Wilkinson wrote of the ‘false economy’ of cuts to legal aid and disability benefits, which cost Britain’s taxpayers more than they save. In the instance of legal aid, the last decade’s cuts have led to increased long-term spending, as court disputes now take much longer to resolve, and cases once prevented from reaching court level by timely legal aid are now unnecessarily taken through the system.

This same ‘false economy’ principle applies to a wide array of local government ‘savings’ made under austerity. As of 2019, the number of children taken into care has risen by almost 30 percent in nine years, precipitating a national scandal whereby children (and vulnerable adults) have been placed in unsuitable and unsafe accommodation.

Similarly, cuts to road maintenance have led to a national pothole crisis, and councils are now regularly taken to court for damages to vehicles caused by our decomposing roads – another example of where cutting direct services has lead to spiralling costs to the taxpayer and their local democracy.

It is notable that of the first councils to issue Section 144 notices, many were Tory-controlled councils who had long held ideological commitments to the ‘outsourcing agenda’, where councils no longer deliver services directly, but are instead ‘commissioning hubs’ for businesses to profit from running these services.

After a radical outsourcing agenda where 95 percent of its staff were re-employed by the private sector, Northamptonshire was the first to issue a notice in 2018, while the Conservative council in Barnet threatened to issue a notice around the same time after it cut its directly employed staff from 3,200 to 332.

In 2018, the BBC compiled a list of 11 local authorities at risk of bankruptcy, of which nine were Conservative-run. Of these, only Lancashire County Council represented an area with above average levels of poverty – but these were the councils least ready to deal with the cuts imposed by the Liberal-Tory coalition government. Earlier on, deprived Labour areas with more efficient in-house services were capable of more flexibly managing their budgets to cope with the lost revenue.

The Next Wave

The next wave of bankruptcies is unlikely to follow the same pattern. The overwhelming costs associated with deprivation and poverty are more than beginning to take their toll; in addition, it’s becoming clear that despite being far less invested in outsourcing, Labour-controlled authorities are still suffering from systemic weaknesses due to lost services that only aggravate financial woes.

One example is the mass sell-off of council housing, which has decimated council housing stock – something which was once not only a key source of revenue for local councils, but also a source of cheap and safe accommodation for people in need of support.

While the sell-off began under Margaret Thatcher, it continued apace under New Labour, in which funding for maintenance and repairs was withheld from councils unless they transferred stock to independent housing associations or engaged in costly PFI deals.

The result of this is a grievous loss that sees many councils paying egregious sums of money to accommodate low-income families and homeless and vulnerable people – and often in unsafe, unsuitable conditions in hotels, B&Bs, and the private rental market.

Nowhere has this collapse been felt more keenly than in parts of the ‘red wall,’ communities where collapsing traditional industries have left councils among the biggest and most significant investors and employers in the local economy.

In these areas, people have watched longstanding Labour authorities grapple with an unprecedented funding crisis – and in many cases, residents have come to associate Labour authorities for their failing high streets, reduced service provision, and increased council tax.

Central Government Games

In the most recent financial settlement with local authorities, the government announced one of the first cash increases for local government in a decade. The suggestion from the 2020 Spending Review was that funding would increase by £2.2 billion; to make this spending up, the Treasury have assumed a 4.99 percent increase in council tax, amounting to 87 percent of the total increase.

Since 2015, the Treasury has assumed a 40 percent national increase in council tax to pay for its own spending commitments in local government, increasingly infuriating residents who are bewildered why their taxes must increase while the service quality declines.

Through measures like these, the Tories have successfully devolved the political responsibility for austerity to councils, particularly in impoverished Labour heartlands, where the ‘establishment’ of local Labour politicians are increasingly facing the wrath from local residents over the destruction of their social fabric.

Furthermore, every one of these problems is worsened by the hidden policy levers applied by central government to gerrymander local government financing, applying it to their own political priorities, or to prop up politically favourable authorities.

In 2017, Surrey County Council gained media attention following allegations of a ‘sweetheart deal’ done over ‘transitional funding’. The funding—designed to ameliorate the impact of local authority spending cuts—was delegated by the government primarily to Conservative councils, with Surrey County Council receiving by far the most extensive grant.

But allegations of gerrymandering and the ‘pork-barrelling’ of one-off grants and ringfenced pots have dogged the Tories’ local government record in other areas, too. For instance, on the announcement of the ‘towns’ grant in the run-up to the 2019 General Election, it was noted that money invested appeared to closely tally a list of Conservative marginals and target constituencies.

Funding Inequity

The use of Treasury formula to allocate investment is also a source of significant iniquity, skewing grant money and one-off payments towards already affluent areas of the country at the expense of the less well-off.

In 2018, local government lobby group Key Cities first raised the issue of the 80:20 Treasury rule on grant funding for housing, pointing out that the use of the concept of ‘highest affordability pressure’ was being used to allocate £5 billion of housing money away from local authorities suffering from deprivation towards more affluent areas.

Through the formula, ‘highest affordability pressure’ is crudely identified as the largest absolute difference between average house prices and average incomes, and was used as a bellwether to determine 80 percent of all available funding. The geographical impact this formula had on financial allocation, particularly when contrasted with a the indices of multiple deprivation, was severe.

The government has also recently introduced a new, unevidenced weighting in their calculations around local government financing – ‘rurality’. By this metric, ‘rural’ authorities are considered to be in need of higher rates of remuneration than urban authorities for specialist costs incurred by them in the provision of services. Thankfully, plans to remove the concept of ‘deprivation’ from calculations on the funding appear to have been shelved; though for how long, it is hard to say.

But the government also appears determined to reduce the scope of another route to Local Authority spending: borrowing. In recent years, council borrowing has sharply risen, especially in relation to commercial projects designed to raise additional income to services.

Since 2017, the Tories have been looking to head off council borrowing, and moves were made late last year to increase interest rates on council loans via the Public Works Loan Board, a familiar source of cheap local authority finance.

The conclusion of all this is nothing less than an existential crisis for local government, and a crisis likely to be weaponised against Labour, given that it controls areas most likely at the risk of bankruptcy.

Crisis for Labour

The Tory attack lines are easy to imagine. Profligate Labour Councils, spending beyond their means, are increasing council tax more than their Tory counterparts and providing worse outcomes. In deprived areas with longstanding Labour majorities, hyper-localist positions will be taken associating Labour’s hegemony with economic failure and collapse – urging voters to break with electoral habits and traditions.

There are already signs of what the Tories may offer as a solution to this ‘problem’. Last year, the Conservative-dominated County Councils Network published a report which encouraged the abolition of as many as 213 smaller English councils, and their subsequent replacement with 25 ‘super-authorities’. No doubt, the creation of these authorities will be seen as an opportunity to further break apart areas of Labour hegemony in the ‘red wall’ and consolidate local Tory gains.

Sadly, Labour has already missed the most pressing opportunity to deflect from these arguments. When libraries, leisure centres, and youth clubs were being closed in unprecedented numbers, Labour supported austerity. In doing so, it failed to place the blame at the door of national government, leading many people to believe their suffering was not a national political issue but a problem with the sadism of their own (often Labour) local councillors.

For Labour to avoid repeating its fate in the ‘red wall’, continuing to argue that local austerity is a national issue is of supreme importance. With so much damage done, winning that debate will be an uphill battle – but it is a crucial one to reclaim the narrative in the decimated post-industrial communities in Scotland, northern England, the Midlands, and South Wales. If Starmer’s leadership dithers on the question, further electoral trouble lies ahead.