Large local difficulties: collapsing councils and the next Labour government

The desperate plight of town halls spells economic as well as social ruin, but there might—just—be a way out

April 09, 2024
A champion of local government: as mayor of Birmingham, Victorian statesman Joseph Chamberlain instigated a slew of measures that vastly improved the lives of the city’s inhabitants. Image: IanDagnall Computing / Alamy
A champion of local government: as mayor of Birmingham, Victorian statesman Joseph Chamberlain instigated a slew of measures that vastly improved the lives of the city’s inhabitants. Image: IanDagnall Computing / Alamy

It is particularly poignant to witness the death of ambitious local government in Birmingham. For the same city that is today outright eliminating its arts budget, slamming the doors on its community centres and looking away from fly-tipping was once the cradle of active municipal governance.

Joseph Chamberlain promised that the town (which did not yet enjoy city status) would be “parked, paved, assized, marketed, gas & watered and ‘improved.’” And in a few short years as mayor in the 1870s, he came good. Water was socialised and cleaned up for the people, while public ownership of gas turned the council a profit. The metropolis was physically remade—with slums cleared, and a new centre around the new Corporation Street laid out. Local lives became longer, as death rates plunged, and richer too: with new schools, libraries and swimming pools and several new parks, plus the expansion of the Museum and Gallery. 

You can’t read this list of Victorian achievements in 2024 without thinking about how many of them contemporary retrenchment will reverse. The immediate catalyst for the latest swing of the cold steel on Birmingham are local: a botched IT system and a particular failure to manage and put right historic claims for equal pay. But this is not just a Birmingham story—at either end of the tale.  

After Chamberlain moved on to Westminster, he successfully agitated for rationalised local government nationwide which, from the 1880s, opened new possibilities for innovation in other parts of the country. And today, the underlying frailty of Birmingham’s finances is anything but unique.

The total spending power of town halls by the early 2020s was down by something like a fifth on 2010. The numbers can be cut in different ways: the Local Government Association highlights another measure, and a reduction of over a quarter (27 per cent). Either way, this is an astonishing decline. For contrast, real expenditure in the creaking English NHS is actually up by around a third over the last decade. Which starts to explain why so many councils and their services are not so much creaking as collapsing. 

The Institute for Government logged some of austerity’s painful pre-pandemic effects, including the closure of a third of all England’s libraries and reduced bus mileage, both effects most concentrated in deprived areas. Various “levelling-up” schemes, emergency pandemic grants and other ad hoc easements—including a £600m top-up unveiled by Michael Gove in January—might have softened the arithmetic more recently, if it weren’t for galloping costs of delivering those services, which councils have minimal freedom to control. 

Above all, the social care that councils are legally (to say nothing of morally) obliged to provide consumes something like 80 per cent of the total budget of responsible authorities. In our ageing society, the number of adults who need it is only going one way. Meanwhile, outlays on children’s social care have risen even faster. In this field, the shredding of preventative services like Sure Start meets strong legal rights to crisis support and a broken ecology of provision, in which the price of scarce care places can be bid up to ridiculous heights, and profiteering is a growing concern. 

Care isn’t the end of it. There is also an epidemic of homelessness, with the numbers of people councils are forced to put up in—simultaneously costly and crummy—temporary accommodation having more than doubled since 2010. Certain generous-sounding national reforms, for example in terms of Special Educational Needs, have turned out to be entirely unmatched by adequate funding, and thus are becoming another unmanageable local duty. The bill for ferrying children who need help to get to school has also soared, often because cutbacks have left them further from a suitable school place than before. 

With some of these problems, it is easy to say “we shouldn’t be starting from here” and point to the many costly perversities flowing from the long years of austerity. And that line is perfectly adequate for a Labour party in opposition. But the weeks are now ticking down to the day when it is almost certain to be in government, where—unless it can change something—it is fated to preside over the continuing collapse of the civic realm. 

One benchmark is the issue of Section 114 notices by council finance officers such as those in Birmingham—notices often slightly inaccurately dubbed “bankruptcy declarations” in the press. Seeing as councils can’t technically go bust, a better comparison might be with a firm putting itself “into administration”. Just like how control of a business passes to administrators, Whitehall can appoint “commissioners”—as it has done for Birmingham—with a narrow focus on rebalancing the books. 

In the first 17 years after 2000, no such notices were issued. But in the few years from 2018, eight councils have issued one or more, overwhelmingly because they couldn’t make their sums add up. And this could be the start of a cascade.

Urban Coventry, rural Somerset and my own mixed West Yorkshire borough of Kirklees are among the growing list of councils to have floated the possibility of a notification. After sending questionnaires to all councils, the Local Government Information Unit recently reported that half (51 per cent) of authorities thought that, barring a funding change, it was “likely” they would be issuing a Section 114 within five years. And this is before they have had to grapple with the logic submerged in the savage spending plans that Jeremy Hunt has, without any challenge from Labour, pencilled in for the next parliamentary term—logic which leads the Institute for Fiscal Studies to suggest that the “worst” for town halls is “yet to come”.

The prospective descent is from a starting point where—to take just one telling example—Kent County Council has put Sessions House, its own headquarters and a 200-year-old listed landmark, on the commercial market. The public square is, almost literally, being assessed as unaffordable. Increasingly but unsustainably, the way in which some sort of show is being kept on the road is through so-called “capitalisation directions”, in which Whitehall consents to councils flogging precious public assets for ever in order to pay today’s bills. 

Should Labour sweep to power later this year it will be because, whatever the party’s cautious protestations, the country expects it to arrest the descent into public squalor. The voters, let alone Labour’s own councillors and activists, will want and expect things to change fast.

Sensing as much, when he was asked in late March how he could help a council like Sheffield, Keir Starmer said that as PM he could start making a difference “straight away”. One Labour councillor from another struggling borough told me that Starmer’s specific suggestions fell well short of what they needed to hear. Let’s consider the list. 

The Labour leader pointed to a housing reform which might help stem the flow into emergency accommodation, although it is a change which, after delays and dilutions, the government is already pursuing. He talked, too, of “longer-term funding” to aid better planning, at best an incomplete answer to brute insufficiency.

More promising to some northern ears was Starmer’s suggestion that he would “put right” Rishi Sunak’s tilting of the scales against deprived urban areas—notorious leaked footage from 2022 had caught the PM boasting to Tory activists in leafy Turnbridge Wells about this. Could judicious rebalancing now solve the crisis? 

Sadly, in the view of the LSE’s local government expert Tony Travers, there is “no chance at all of sorting problems out by redistribution,” because “everywhere’s hurting.” He reminds me of the public letter the Conservative leaders of Hampshire and Kent county councils wrote to the PM and chancellor just 18 months ago, warning they could soon go bust. “Everybody’s already down very significantly,” so you’d “need money to lubricate redistribution,” or you’d “just be cutting [some communities] more.” And in a peculiar way, the resistance could be all the greater if a landslide created a cohort of Labour MPs nervously defending newly won marginal seats in the shires. 

Starmer also talked, as always, of the economic growth which he desperately hopes will eventually provide him with the proceeds to arrest the collapse of the public realm. But here’s the rub. From potholed roads to half-staffed planning offices, there are now countless ways in which local squalor is impeding commercial vitality.

Last year I held the pen on the Resolution Foundation’s comprehensive economic strategy for Britain: its central plank was turning Birmingham (along with Manchester) into a humming service industry hub, starting by making it into the sort of place that highly skilled service workers would want to live. The closures and cutbacks now in prospect—less music, less art, more fly-tipping—could hardly be better designed to make life there less attractive. 

Across many communities, there’s a cycle of sinking expectations, low growth and public retrenchment from which I’m not sure it’s possible to break free while submitting to continuing austerity. So how else might we get out of this mess? Ultimately, councils are going to need ways to lever in new resources. Their existing taxes simply can’t do the heavy lifting.

Regressive by design, and based on house valuations from a third of a century ago, council tax is an unjust and embarrassing absurdity, but one which Labour ducked reforming last time it was in power. It has got worse since, and not only because of the those increasingly anachronistic valuations. In an act of vandalism that got less attention that it warranted, the coalition government abolished nationwide council tax benefit. This has had many perverse consequences, and ensures that the stiff rises in bills already in train will hit the poor particularly hard. Without comprehensive rebates for those who can’t afford the tax, councils can’t reasonably raise it much further. 

As for business rates—run on bewildering and centralised lines—in our post-pandemic world, it is surely hard to think of a shakier tax base than retail and office property. Civic life must be rebuilt on firmer foundations. 

So what else is there? Well, at least for beauty spots and vibrant cities, Travers points to tourism taxes, for example on hotels, as something many places around the world successfully levy. It has the plus of avoiding confrontation with pinched local voters, although a downside is its modest plausible scale. 

Potentially more significant, especially in a context of the expanded housebuilding that Labour envisages, could be somehow levering in resources from developers. A pair of existing planning tools—so-called Section 106 agreements and Community Infrastructure Levies—already allow councils to require developers to, respectively, provide or contribute towards social amenities. These can and should be strengthened and applied more forcefully in return for the opportunities that will arise with land newly earmarked for planning. 

More broadly, while councils are in charge of pressing the button on planning approvals that can produce a several-fold increase in the value of land, they have rarely secured that full gain. Too often, instead, this vast windfall simply drops into the lap of some fortunate farmer or other lucky landowner. But planning is a communal decision with communal consequences, and this should be the community’s gain. 

This is complex terrain, and a range of reforms may be needed. These might include a new wave of compulsory purchase orders by councils, to acquire land not only for their own development, but also to sell on for private development. The whole sequencing of the development process might also be ripe for recasting, to ensure that the “hope value” that planning rights might be granted will in future accrue to the councils themselves, and not simply landlords who have the good luck to hold land when planning approval begins to look likely.  

There has already been interest on both sides in parliament in looking at some of this—with Michael Gove amending one of his own bills to permit more council purchases and Labour floating bold thoughts on changing the way land is valued at the point of compulsory sale, to curb the prices that have to be paid for acquisitions that serve pressing social purpose. In and around the southeast of England and the more dynamic cities, where land is always at a premium and planning decisions most dramatically inflate the price it commands, the effect of such reforms on some councils’ finances could be transformative. Elsewhere, that is less true. But if a new government could ease the problems of councils in just part of the country, then that may give it that all-important financial “lubrication” that might allow it to redistribute elsewhere. 

But there’s one last snag. As it stands, many town halls remain too cash-strapped to contemplate any sort of land purchases for development or resale, even if reform can curb the costs of them doing so. There is a glimmer of light in Rachel Reeves’s recent exposition of a fiscal rule on “day-to-day” spending that facilitates borrowing to invest, although her simultaneous insistence on getting headline debt down over “the medium term” still leaves very little room to support even promising local investments in land or anything else. 

If things get bumpy, the big question in the next parliament may be whether a Labour government will break that second fiscal rule—or whether, instead, the rule will break it. In the wrong circumstances, “iron rules” could cease to be a totem of strength, and instead become a dangerous codification of brittle rigidity. But if the economy behaves and GDP picks up, the debt ratio will fall automatically and that dilemma could yet be avoided. It would then become possible to imagine some extra grant funding to councils to pump-prime land and development deals that would soon generate new local revenues. And if a defensible dash of imagination were then applied to the (entirely arbitrary) current definition of “investment”, so that it covered more of the outlays required to build better-skilled, healthier and prosperous communities, then the collapse of civic life might be arrested, and even reversed. 

There are, admittedly, an awful lot of “ifs” here. But as councils stare into the abyss it is comforting to know there may yet be a narrow path to avoid tumbling into it. Before he got to work, Joseph Chamberlain voiced all the confidence of his age when he said of Birmingham that “the town shall not, with God’s help, know itself.” If we don’t get local government back on its feet the same will be true of towns, cities and counties up and down the country. But this time it will not be God, but the Devil that’s doing the helping.