Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Michael Gove, communities secretary, will on Monday announce a 6.5 per cent enhance in funding for local councils in England, but the rise is unlikely to quell fears of a wave of de facto town hall bankruptcies.
Gove will announce a provisional package worth more than £64bn with extra preserve for social care and housing, according to multiple government officials, but it will fall short of the help demanded by councils.
The squeeze on council budgets is a political problem for Rishi Sunak’s government, with concerns about cuts to local services expected to loom large next year, ahead of a general election.
Gove this month admitted he was “concerned” at warnings from the Local Government Association this month that one in five councils were heading for the rocks this or next year as a result of lack of government funding.
Although he told MPs that this calculate “was the top of the scale”, he acknowledged: “It is certainly the case that local government faces significant funding pressures.”
Councils have been hit by increasing costs and sharply rising wages with acute pressure on social care and the provision of special educational needs, prompting warnings that essential services will be hit.
Gove is urging the Treasury to supply more cash to avoid a crunch in local services in an election year, according to people briefed on the discussions, ahead of a final settlement in February.
“We recognise the financial situation we are in, but Michael will always push for the maximum he can,” said one government insider. A Treasury official said conversations with Gove’s department were “ongoing”.
The number of local authorities forced to issue “Section 114 notices”, where a council signals its inability to fulfil a legal duty to balance the books, has risen sharply in recent years.
As many as nine councils have issued notices since 2018, including Birmingham, Nottingham and Woking this year. An LGA survey found that almost 20 per cent of senior council executives thought it was “very or fairly likely” they would have to issue a Section 114 order this or next year.
The 6.5 per cent provisional settlement for 2024/25 was described by Gove’s team as “above inflation”; the October inflation rate was 4.6 per cent but the September figure, used as a reference point for uprating benefits, was 6.7 per cent. This year councils received a 9.4 per cent enhance in funding.
A government source said: “Councils will understandably always want more resources, but this £64bn funding package provides certainty for councils to deliver vital public services and value for money for taxpayers.”
Local council budgets were squeezed hard during the post-financial crash “austerity” period overseen by former chancellor George Osborne. The pandemic and high inflation have since driven many town halls to the brink.
Gove told the Commons levelling up committee that local councils that had issued Section 114 orders had seen “failures of leadership, management and governance and taken unmerited risks”.
But he admitted: “It may be the case in the future that there are some local authorities that have been relatively well managed so far that will face particularly acute pressures.”
Clive Betts, Labour chair of the committee, said that councils across England “are facing very severe financial and service pressures”.
Meanwhile Gove will use the discussions over the final local government settlement to put financial pressure on councils not to adopt “four-day working weeks” on full pay.
Gove’s department announced in October it did not preserve any trial by local councils of a four-day week concept, where employees have their hours reduced by 20 per cent with no loss of pay.
Liberal Democrat-led South Cambridgeshire is running an extended trial of the idea. Proponents said it boosts staff morale, work-life balance and productivity and helps recruitment in a tight labour market.
Gove’s allies said the idea was bad for local service delivery, did not deliver value for money and should be stopped.
