From 2010-2020, levels of government grants to local councils were cut by 40% in real terms, from £46.5bn to £28.0bn. Council chiefs were encouraged to find sources of income other than the usual mix of grants, council tax and rates. Some borrowed to invest but, in many cases, the investments were insecure or didn’t generate the revenue required.
In addition, authorities face increasing demand for services against a background of high inflation. The combined result is that many councils are suffering severe financial difficulties. Since 2020, six councils have issued Section 114 notices, declaring themselves effectively bankrupt.
The combined debt level nationally is currently £97.8bn, equivalent to £1,400 per resident. Recently several councils have failed to balance their budgets, including Thurrock whose debt of £1.4 billion is linked to failed investments in solar farms. EAB has documented Thurrock’s problems since 2022. But there are fears that many other authorities will go bust in the near future.
Which councils in East Anglia are in financial trouble and which have managed to balance the books?
County council budget holes
No county councils are debt-free. The greatest debts in Eastern region are:
- Norfolk £828,706,000
- Essex £589,818,000
- Cambridgeshire £505,397,000
- Suffolk £370,067,000
- Hertfordshire £359,705,000
However, when the debt is divided by the population, the ‘debt per person’ level is quite different. (The population of Essex at 1,506,300 is much greater than Norfolk, with 918,000.)
The debt per person level:
- Norfolk £902
- Cambridgeshire £743
- Suffolk £485
- Essex £392
- Hertfordshire £300
Why does Conservative-run Norfolk have three times the debt per person of Hertfordshire? One factor is that the Authority is paying nearly £31m a year debt interest. Others include major investment in special schools and the new river crossing in Great Yarmouth.
The amount borrowed by Norfolk will likely exceed £1bn by 2026, in part to pay for major new projects like the Norwich Western Link. Council leaders justify the need to borrow more for new capital projects but have called for central government to provide greater funding.
Several councils have zero debt:
Breckland, North Norfolk and Broadland in Norfolk; Rochford and Maldon in Essex; Hertsmere in Hertfordshire; and East Cambridgeshire.
All other authorities in the region have some level of debt. These are the ten with the highest levels of debt per person:
- Thurrock £8,049
- Luton £3,168
- Brentwood £2,815
- Stevenage £2,631
- Harlow £2,269
- Dacorum £2,174
- Uttlesford £2,110
- Welwyn Hatfield £2,040
- Epping Forest £1,978
- Southend-on-Sea £1,968
Why the debts?
Jonathan Carr-West, Chief Executive of the Local Government Information Unit, blames 13 years of pressure on local government finance. ‘We’ve seen funding from the central government to councils reduced by nearly 50%….councils have also been encouraged to undertake more commercial activity, to be more entrepreneurial.’ He observes that the rising costs of housing and homelessness are not met by income from council tax, and added that we must re-assess how we fund local public services, saying the system is close to breaking point.
Dame Meg Hillier, chair of the Public Accounts Committee, says that some examples of debt were ‘staggering’, and that councils are facing demographic pressures on social care and special educational needs. The Committee warned in 2020 that some councils had pursued high-risk commercial investment strategies and ‘optimistically believed that there was little downside to commercial activity’. She believes that the impact on local services is likely to be severe and long-lasting. For example, Conservative-run Thurrock has planned £18.2million worth of cuts next year including a reduction in funding for social care packages and a near 10% rise in council tax.
Did councillors make wise decisions?
Councillors usually make spending decisions which they think will benefit their communities. Whether, since 2010, they have been prepared for new roles as investors making complex financial transactions is debatable. However, it’s interesting to ask why some councils have stayed debt-free.
Article includes information from the Local Democracy Reporting Service by Paul Lynch