Devolution is not the answer to local councils' crippling financial problems

Empowering local government is important, but many authorities are so under-resourced that they can’t manage their existing responsibilities

March 31, 2023
London, UK. 1st Mar, 2023. People from the London Borough of Croydon protest outside the Council offices against the council raising Council Tax by 15%. Credit: Peter Marshall / Alamy Stock Photo
London, UK. 1st Mar, 2023. People from the London Borough of Croydon protest outside the Council offices against the council raising Council Tax by 15%. Credit: Peter Marshall / Alamy Stock Photo

Earlier this month, hundreds of residents stood outside Croydon’s Town Hall chanting, shouting and waving hastily designed banners. This was a community under enormous strain. 

Having been declared bankrupt last November for the third time in two years after struggling with high debts and poor investments, Croydon Council reluctantly voted to increase council tax by a monumental 15 per cent to try to salvage the council’s finances. For elected mayor Jason Perry, winning the vote was a pyrrhic victory.

As we approach the May local elections, parties across the spectrum are calling for greater devolution of powers to local councils. But none of them will acknowledge the salient fact: Britain’s local authorities are financially on their knees and more powers without more funding could make their problems worse.

We often underestimate just how important our local councils are for providing public services. It’s everything from bin collection to children’s social care, road maintenance to parks. Inflation, higher energy bills and the cost-of-living crisis have flooded our town halls with waves of insecurity and risk. The expansion of devolution in the last 12 months to English regions shows welcome recognition of the effectiveness of many locally organised and funded services in an inhospitable climate. But in its enthusiasm to agree neat regional deals, this government runs the risk of letting political ambition conjure a heady smokescreen over a buckling finance system which it has refused to reform.

Giving more powers through devolution is essential for responsive and effective delivery of services. But as it stands, our long-suffering councils are struggling to survive with the responsibilities they already have. The stories of Thurrock, Slough and Croydon are cautionary tales.

For these three councils, poor financial management, high debt levels and the cost of borrowing have made day-to-day spending impossible. All three are now the subject of government intervention to take over essential services. Eyes are parsing over the local government landscape for the next victims of this crisis—with Woking and Southampton reported to be close to declaring bankruptcy.

The roots of this debt crisis originate in yearly cuts and George Osborne’s decision in 2013 to raise the borrowing cap for local authorities, which enabled councils to take on loans to pay for improvements and investments. From Bournemouth to Barrow, councils have been selling off their assets at a loss year-on-year to save money. Indeed, in the leafy green Tory heartlands of Surrey, neighbouring councils Runnymede and Spelthorne are both paying more to settle their debts than on essential public services.

After a maelstrom of financial turmoil, these debts are coming back to haunt councils. However, it is short-sighted to see Thurrock, Slough and Croydon in their own bankruptcy bubble. Local government is facing the biggest challenge for operating in its recent history. Finance and resources officers, as well as their noble councillors, are looking for scraps of security, resilience and control to battle the ravaging effects of this financial crisis and increased demand for already-existing services.

The gaps in funding are forcing many councils to raise their council tax levies to the maximum amount of 4.99 per cent, in a situation the County Councils Network has called “extremely tough”.

And to make matters worse, the government continues to dither and delay on its allocations of the little funding it does make available for councils. With growing public interest in local government issues as we approach the May elections, it’s astonishing that Whitehall only published this year’s local government settlement on 7th February. This will have provided vital, finalised information needed by councils to calculate how much they could pump into essential services before time ran out to save them. Leisure centres, parks, addiction clinics and libraries risk being thrown to the wolves.

It’s especially hard to defend the agonising delay in publishing annual Public Health Grant allocations, only just issued on 14th March. This money is the purest of “levelling up” funding—active travel, homelessness, and sexual health services are on the line if budgets are cut or aren’t applied in time.

The delays have an impact. Councils have never had such an erratic and insecure financial climate to work within. Labour proposes to reform annual settlements—which are a headache for council departments—and replace them with multi-year “block funding.” The party argues for a settlement delivered over the course of three or more years, which would give councils more flexibility and freedom to plan longer-term improvements and its delivery of services. But this won’t be a panacea as Labour may hope. The Brown Commission recently suggested it should be implemented as just one part of a wider offer to the regions.

Ultimately, Westminster’s enthusiasm for empowering local councils through devolution deals is delaying crucial reforms to local government finance. Giving bankrupt councils more to do, even with an expanded settlement to compensate, won’t build a positive future for reliable, locally guided funding.

After years of competitive bidding and financial decline, local government needs the foundations for improvements in its current responsibilities. Over 10 years of cuts have pushed councils into severe risk where devolution, however much it may bring opportunity and popular regional character, risks spreading already meagre council funding dangerously thin. Without proper financing it could represent a serious threat to local services and the residents who rely on them.