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Birmingham council crisis is only the start
Squeezed between government cuts and a huge care bill, authorities can’t even afford basic services
There’s some stiff competition in the local-authority financial mismanagement stakes. Birmingham city council, which has just issued a Section 114 notice — declared bankruptcy, in council speak — is in contention for one of the top spots. When everybody else worked out half a century ago that you have to pay women the same as men for the same work, the council was looking the other way and has been landed with an unexpected bill for £650 million to £760 million this year. That’s after paying a £1.1 billion settlement for the same offence.
My money, though, is on one of the smaller contenders. Some councils with limited means are showing extraordinary form. On an annual budget of £20 million, Woking council has run up a debt of £1.8 billion — £17,300 per resident — buying dodgy shopping centres. Thurrock spaffed £1 billion up the wall, as our late lamented prime minister might have said, on a wide range of exciting investments. Slough and Croydon are in similar trouble. All have issued Section 114 notices over the past couple of years.
Although Birmingham has been Labour-run for 11 years, the messes these councils have got themselves into have not been the result of overspending by crazed lefties. Thurrock and Woking were both under Tory control when most of the bad decisions were made. Individual mismanagement was in part to blame, but there’s also a broader problem.
You probably think councils distribute their money widely across a vast range of services, like street lighting, potholes, swimming pools, parks, schools and whatnot. So did I, until Birmingham’s collapse led me to call lots of people in local government. Actually, two-thirds of their budgets, on average, go on social care. That’s partly the burden of looking after the growing number of older people, but it’s also because the number of disabled adults and children in care has been rising. A former local authority chief told me that 507 children had absorbed a seventh of his budget. Their number included a boy who cost £1 million a year because he was so violent he needed three people to look after him all the time.
Councils have no choice but to pay such bills. Their duty towards old people who lack the funds to pay for their own care is enshrined in law. Spending on other services is optional. That’s why the proportion of their cash going on care is rising, and that going on everything else is falling. Cuts are harshest in poor areas, which are more dependent on central government funding and have less scope for increasing their revenues by raising council tax. Gateshead council has shut two swimming pools this year; it used to have 16 libraries and now has five; it no longer has any community centres or youth outreach workers.
At the same time as the demands on councils have been growing, revenues have been shrinking. That’s largely because councils were the principal victims of George Osborne’s austerity programme in the aftermath of the financial crisis. Central government funding to local authorities has been cut by about 60 per cent since 2010. All in all, councils’ spending power fell, on average, by around 29 per cent in real terms over the period.
This unfortunate conjunction of circumstances has three consequences. The first is growing financial instability. One of the reasons councils have been making dodgy investments is that in order to let them earn some money to make up for the cuts, Osborne gave them more financial freedom. Some of them used this to invest sensibly; some did not.
More councils are likely to go under in the next couple of years. It won’t just be badly managed ones: well-managed ones are sinking too. A group of urban councils reported last month that one in ten were thinking of making a Section 114 application this year and two in ten next year.
Second, local democracy is being weakened. More and more central government funding comes in little pots of money that councils have to bid for, through the Towns Fund or the Levelling Up Fund, that are created by Westminster and Whitehall. It’s all very well making councils bid for funds to refurbish theatres or put chessboards in parks if that’s what’s needed, but not if local people think a library or a youth club is more important. Funding councils in this way is inefficient, patronising and antidemocratic. It’s also not what people want. Voters like councillors more than government ministers, and 61 per cent of them want more decisions taken locally.
Third, and most important, the squeeze on local government services is making Britain look and feel poorer and uglier. Councils have a more immediate and visible effect on people’s lives than anything national government does, and because care swallows up most of councils’ spending, the funding for mending potholes, cleaning off graffiti and clearing up rubbish has been slashed. A grimy, depressing environment is not just bad for our morale: it’s also bad for our economy if Britain looks like a developing world country that’s not worth investing in.
This problem is soluble. Government could provide more money by allowing councils to keep 100 per cent of their business rates. It could give them more from central coffers, which ultimately means finding a way of stopping the NHS swallowing an increasingly large share of the tax take. It could give councils more freedom to raise extra money, such as through the tourism tax that Birmingham proposed to levy on hotel bills during the Commonwealth Games, and which the government nixed. We need to do some or all of this if Britain is to look like the kind of country we want it to be.
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