Why Do Councils Go Bust?

[farmerm]

Truth is those with the necessary management skills are busy making themselves wealthy. Nobody leaves school with the intention of gaining the necessary skills and experience to one day be a councillor, people fall into the roll, often with no relevant skill set

 

[serf]

Thought most of the councils that have gone
" bust" was cos they were speculating/ investing the taxpayers money !
FFS the idea of councils is to get the money to spend on the services for the ppl not going down the casino with it ....

 

[Ffermer Bach]

I would have thought the contractors worked cheaper than the council men. For the productivity maybe not by the hour.

I think the big difference is with contractors there are no pension liabilities.

 

[Ffermer Bach]

The single biggest drain on council finances is reckless speculation into the commercial property market. A few years ago councils could obtain loans at 1% interest, They convinced themselves it was a great idea to borrow the money and invest in shops and office buildings with an annual return of 3 or 4 %. They didn't factor in the possibility if interest rate rises nor that people might not want to rent their properties. Some councils purchased shopping centres that have lost 90% of their value. My local council spent £6m on an office building that no one wanted to rent !!

Another example of something similar, is university vice chancellors paying themselves very handsomely (as they CEOs of a large company after all!), then borrowing heavily to build vanity projects (for example https://www.bangor.ac.uk/about/pontio), this then saddles the university with massive debt. The vice chancellor is quietly pensioned off and a new one found. Meanwhile the uni then has to industrially hoover up foreign masters students whose fees cover the interest payments.

 

[zero]

Council did a roadside drain through our village about 7 or 8 yers ago.
5 men, 1 digger, 2 wagons, a van and a hospitality unit. They laid a 20' lenght of twin wall pipe before lunch, then laid another 20' in the afternoon! In a soft road verge on the opposite side of the road from the pipes and cables. Now it all wants doing again as they didn't put it in deep enough!
No wonder they go bust if they organise everything like that..

 

[Widgetone]

All of the above. And-
Often stated a lot of back dated gender pay gap restoration costs too. I wonder if they will be sending out backdated pay to staff who left/retired years ago?
Reduction in central govt funds often blamed too.

Then the raft of top jobs on large six figure salaries, report of someone ( doing nothing useful allegedly ) in London starting on £80k, two pay rises later on £119k.

 

[Sonoftheheir]

Wonder why Birmingham city council are so bad

 

[Campbell]

Until there is some sort of personal responsibility placed on these council [or any public] officials nothing will change. I read about Performance Bonuses... but never about under performance penalties. Just read about Hereford council organising the painting of double yellows on a roundabout [don't ask] cost £300, found out it was a cockup, cost £1300 to have the lines removed. They are now propose spending £230k, inc some grant money, on replacing 12 [sedum planted roof] bus station shelters supplied by a company in Berkshire. As a reader commented, apparently it seems none of the many great local engineering companies can build a bus shelter...........

 

[Still Farming]

Couldn't organize a P up in a Brewery.

 

[Bongodog]

Social care is a huge cost, but it only affects unitary authorities and County councils, many of those going bust are district councils whose only statutory responsibilities are collecting rubbish and planning.
One of the problems as I see it is that many Cllrs are spectacularly ill equipped to manage anything, I can recall when most Cllrs were either Tory small business people or Labour trade unionists, the former knew how to look after money and the latter knew how to work and stand up for the poor. Most business people now say they haven't got the time and there are far fewer trade unionists who are going to get paid whilst attending to council matters. Instead we get a bunch of do gooders with pee poor degrees who have never earnt an honest penny.

if you are looking for waste, here's an example, locally we have a road that has always been liable to flood, usually the water is no more than 3 inches at worst it will be 8 inches. Until a few years back the road was left open for use at the drivers discretion, then someone at the council got involved, next thing we have regular road closures that continue even after the water has retreated. Then we have huge galvanised steel locked gates put in position, yet more expense. 2 years ago they decided that we needed temporary traffic lights as a puddle forms on one small part even after the rest is dry. This years addition to the procedure is the need to get a roadsweeper in to remove the twigs leaves etc left behind by the water. It was apparent for at least 2 days that the water was likely to be off the road , but nothing happened until a truck with lights turned up at one side at 2pm yesterday. They sat there waiting for the sweeper and crew to arrive at the other end. Sweeper arrived at 3pm, couldn't do anything as gate locked at that end. Crew finally turned up with key for gate at other end at 4.30pm !!!

I have tried via my previous County Cllr and present one to find out who decided we needed gates etc, who makeas decision on opening and closing, never had a single answer. Its all very well saying that the Council officers are the ones making the decisions, but elected cllrs should be strong enough to challenge them and dictate policy.

 

[Hilly]

Thought most of the councils that have gone
" bust" was cos they were speculating/ investing the taxpayers money !
FFS the idea of councils is to get the money to

Social care is a huge cost, but it only affects unitary authorities and County councils, many of those going bust are district councils whose only statutory responsibilities are collecting rubbish and planning.
One of the problems as I see it is that many Cllrs are spectacularly ill equipped to manage anything, I can recall when most Cllrs were either Tory small business people or Labour trade unionists, the former knew how to look after money and the latter knew how to work and stand up for the poor. Most business people now say they haven't got the time and there are far fewer trade unionists who are going to get paid whilst attending to council matters. Instead we get a bunch of do gooders with pee poor degrees who have never earnt an honest penny.

if you are looking for waste, here's an example, locally we have a road that has always been liable to flood, usually the water is no more than 3 inches at worst it will be 8 inches. Until a few years back the road was left open for use at the drivers discretion, then someone at the council got involved, next thing we have regular road closures that continue even after the water has retreated. Then we have huge galvanised steel locked gates put in position, yet more expense. 2 years ago they decided that we needed temporary traffic lights as a puddle forms on one small part even after the rest is dry. This years addition to the procedure is the need to get a roadsweeper in to remove the twigs leaves etc left behind by the water. It was apparent for at least 2 days that the water was likely to be off the road , but nothing happened until a truck with lights turned up at one side at 2pm yesterday. They sat there waiting for the sweeper and crew to arrive at the other end. Sweeper arrived at 3pm, couldn't do anything as gate locked at that end. Crew finally turned up with key for gate at other end at 4.30pm !!!

I have tried via my previous County Cllr and present one to find out who decided we needed gates etc, who makeas decision on opening and closing, never had a single answer. Its all very well saying that the Council officers are the ones making the decisions, but elected cllrs should be strong enough to challenge them and dictate policy.

Excellent post , totally agree with this , sad times now .

 

[Bogweevil]

Simples, costs have risen, income has fallen. Technically councils cannot go bust:


On 5 September 2023, Birmingham City Council issued a ‘section 114 notice’. This decision was made as the council anticipated a gap of £87 million between income and expenditure for the (current) 2023/24 financial year.

In addition to this gap, the council estimated that it would have to pay £650 million to £760 million in backdated equal pay claims, following a court judgment in 2012.

This decision received widespread media coverage, much of which reported Birmingham as having ‘gone bankrupt’. However, UK local authorities cannot go bankrupt. A section 114 notice simply indicates that the council’s forecast income is insufficient to meet its forecast expenditure for the next year.

This Insight examines what would happen if a council cannot meet its spending commitments, and what councils’ options are if this happens.

Why are councils facing financial difficulties?

Local authorities in England have seen considerable reductions in the grants they receive from the Government since 2010. The National Audit Office estimated in 2018 that local authorities’ spending power had fallen by 29% in real terms between 2010/11 and 2017/18. The Institute for Government estimates the fall in spending power as 31% between 2009/10 and 2021/22.

Cost pressures such as a growing population and rising demand for local government services, particularly adult and children’s social care, are also anticipated to increase through the 2020s.

The recent rises in inflation are also causing budgetary difficulties for councils. The Local Government Association has forecast that inflation, including pay demands and energy price rises, will add £2.4 billion to previous budget forecasts for 2023/24.

Press reports suggest other councils may also face disputes over equal pay.

What are councils’ options?
A council’s chief financial officer has a statutory duty to issue a ‘section 114 notice’ if they believe the council will be unable to meet its expenditure commitments from its income. The chief financial officer does not need councillors’ consent to issue this notice.

A section 114 notice means the council cannot make new spending commitments and must meet within 21 days to discuss what to do next.

Previously, most councils in this situation have then passed an amended budget reducing spending on services. This is what happened after the severe financial problems in Northamptonshire (2018) and Croydon (2020): more details of these can be found in the Library briefing Local authority financial resilience.

In the early 2020s, a number of councils facing financial difficulties have sought ‘capitalisation directions’ from the Government. These provide special permission to use their capital funds – for instance, from selling assets or property – to top up service spending. Capitalisation directions have sometimes been incorrectly described as ‘bailouts’.

The Government has powers to intervene in how council services are run (see the Library briefing Local government in England: structures). This does not happen automatically when a section 114 notice is issued. However, many councils that have issued section 114 notices have subsequently been subject to intervention: these include Woking Borough Council, Slough Borough Council, Thurrock Council, Nottingham City Council, and the London Borough of Croydon.

Another option would be for the Government to legislate to reduce the range of councils’ statutory duties. Instead of increasing councils’ income, this would reduce the services that councils are required by law to provide. This option was set out in a letter from Kent and Hampshire county councils to the Government in November 2022. The letter stated that, even if their services were reduced in “unpalatable” ways, they would need immediate financial assistance and a long-term plan for financial sustainability from Government to avoid bankruptcy.

Since then, many other councils have been reported as having concerns that they may need to issue a section 114 notice. Examples include Middlesbrough, Coventry, Somerset and Hastings.

Could councils increase their income?

English councils have relatively few options for increasing their income.

Councils needing additional income can raise their council tax. This cannot be done mid-year and therefore any additional income from this source would take some time to appear. Since 2012, the Government has set national limits on the amount council tax can be raised by annually – typically by around 2% to 5%. The Autumn Statement in November 2022 stated that the limit for 2023/24 would be 5% for councils with social care functions. Croydon, Slough and Thurrock were all permitted additional headroom (15%, 10% and 10% respectively) for 2023/24 in the light of their financial difficulties.

If all councils had raised council tax by the maximum permitted in the 2022 Autumn Statement, this would raise approximately £1.6 billion extra in 2023/24. Within this headline figure, different local authorities would raise different amounts via a council tax increase. In general, less deprived areas have more valuable properties and would therefore raise more council tax than more deprived areas.

In the last few years, the Government has provided small additional grants to councils at the Local Government Finance Settlement in December (for the financial year beginning in the following April). For instance, the 2021–22 settlement included a Social Care Grant of £1.71 billion, and the 2022–23 settlement included a Lower Tier Services Grant of £111 million. The 2023–24 settlement provided a social care grant of £1.345 billion.

Councils also retain a proportion of new business rates revenue. This could provide some extra income, but business rate revenue has been volatile in the aftermath of the Covid-19 pandemic and few councils would be able to rely on it.

Councils in the UK have few other powers to raise income locally. Reports in recent years have explored options for additional powers to raise taxes, including a tourism tax, a local income tax, stamp duty, and taking revenue from VAT and corporation tax for a specific purpose.

These reports include the Institute for Fiscal Studies’ Taking Control: which taxes could be devolved to English local government and the Local Government Association’s Reforming revenues: options for the future financing of local government. Most proposals in these reports would require new primary legislation. However, many of them would raise only small amounts of additional money, which would not be sufficient to meet current needs.


Source: https://commonslibrary.parliament.uk/what-happens-if-a-council-goes-bankrupt/

 

[BrianV]

As the government cuts back on hotels for migrants the responsibility to house them then falls on local councils on top of all the other "homeless" that they are forced to house, these are things not budgeted for so cause a cash shortfall meaning other services are then cut to the bone.

 

[Paddington]

Severn Trent repairing a drain for the fourth time, need to put barriers up with traffic lights. Council supply and sets up the lights at 8am, with two operatives standing by (in the van) for the rest of the day in case of problems, engine running as it's cold outside.

 

[Welderloon]

Well it's certainly not with the amount they are spending on road maintenance in my area

 

[bluebell]

If i or you, make a "bad" investment, spend spend spend, the buck stops with me? its my, my families money im risking, and with that, it "sharpens" the decisions, causes you to get your figure out and make it happen? These others the "public servants" who salieries are paid by us tax payers, how can they, as ffermer bach illustrated with a university head make a very large finatchial investment, without any consultation, or permission? If then that it turns out a total loss/waste then just be able to walk away, into a "feather bedded " retirement with no consquences or be answerable?

 

[Netherfield]

It used to be that Councillors were local business people who knew how to run a company, they were of all parties, not in it for the money.

Now is seems it's a job, many complain how they don't get paid enough, why do we need three councillors for each each of the district.

Son in law used to be in the child welfare department, the amount of money a single child taken in to care costs is unbelievable.

In the case of Shannon Matthews of Dewsbury, the mother and a relative 'kidnapped' her daughter, this woman had 7 kids to 5 different fathers

All the children had to taken into care, and all had to be taken out of the district because their names were public knowledge, the cost from another council to look after these was off the scale, he couldn't tell us the actual amounts because he was bound by law to keep quiet.

Over 600 children are in care in Kirklees alone.

 

[Still Farming]

Plus dealing with public money failed investments to keep their chief executives in top money and pensions.

Iceland bank failure: which councils and local authorities are affected?

List of local authorities that have invested money in Icelandic banks

www.theguardian.com

 

[bluebell]

Wouldnt it be better, for the whole of the UK to go bankrupt, get rid of all our debts institutions , govt , council etc and start a fresh? If only it was that easy?

 

[BRB John]

From what I understand from speaking to councillors they are not allowed to make a profit. Any excess goes back to the government at the end of the year. So they're forced to borrow money to pay for anything over budget and then that just builds up and up over time.
Plus the fact that the council tax has been frozen for several years in Scotland further reducing the budget but to mention the values of the tax bands haven't been updated for like 30 years now.... Lots of big houses paying pee all in council tax...