The leader of Leicester City Council has warned that bankruptcy is a “real prospect” for the authority without further government support.
Mayor Sir Peter Soulsby said the council was “running out of options” to balance its books in a letter to the Levelling Up Secretary, Michael Gove, claiming that the government did not have “the slightest awareness” of the impact of rising costs.
Sir Peter said that without further government support, several services face “savage” cutbacks and the council would likely join Birmingham City Council and others in issuing a section 114 notice before issuing its budget in 2025-26, meaning it is effectively bankrupt.
The Department for Levelling Up, Housing and Communities (DLUHC) said it has given the council a £32 million increase in core spending power and would engage with any authority that was struggling.
In his letter, Sir Peter said: “Hardly a week goes by without a local authority warning that it faces financial crisis and the equivalent of bankruptcy, were it a private company.
“Thanks to extremely prudent financial management we are not there yet, but without a serious rethink from the Government, we are rapidly running out of options.
Without more Government money, these services face savage cutbacks, and Leicester faces the real prospect that the council will join the ranks of those receiving a section 114 notice before we can set the council’s budget for 2025/26— Sir Peter Soulsby
“The pressures on social care are huge and are being experienced by all authorities.
“I don’t believe that the Government has the slightest awareness of the impact the rise in costs will have on councils.
“Indeed, we have been warned to expect a further round of austerity in 2025, which would be disastrous.
“Previous Government cuts have forced us to reduce spending on our other services by 50%.
“I now fear for the future of services such as parks, sports, museums, libraries, cultural services and community centres – indeed all those services that make our city a pleasant place to live.
“Without more Government money, these services face savage cutbacks, and Leicester faces the real prospect that the council will join the ranks of those receiving a section 114 notice before we can set the council’s budget for 2025/26.”
It is a legal requirement for councils to provide some services, such as social care, and if the cost of these services continues to go up, either the Government must provide more money or other services will have to be cut— Amy Oliver
The council has said it is facing large increases in the costs of social care, with more adults and children needing support with day-to-day living and care.
It is estimated that social care services will cost an extra £50 million by 2025, with inflation also stoking rising costs.
Amy Oliver, the council’s director of finance, said: “Councils are under unprecedented financial pressures.
“It is a legal requirement for councils to provide some services, such as social care, and if the cost of these services continues to go up, either the Government must provide more money or other services will have to be cut.”
A Department for Levelling Up, Housing and Communities (DLUHC) spokesperson said it will respond to the letter in due course, and that it was committed to improving the “local government finance landscape” in the next parliament.
A spokesperson said: “We have made £5.1 billion of extra funding available to local authorities through the Local Government Finance Settlement, with almost £60 billion available for the sector – up 9.4% on cash terms on 2022/2023.
“For Leicester City Council, this represents an increase in core spending power of up to £32.0 million or 9.9% – making available a total of up to £356.2 million in 2023/24.
“Councils are ultimately responsible for the management of their own finances, but we will continue to monitor pressures they face and stand ready to talk to any council that is concerned about its financial position.”
Spending beyond 2024-25 would be assessed in the next spending review, the department said.
The news comes after Birmingham City Council – the largest local authority in Europe – issued its own section 114 notice in September.
The notice put an immediate halt on any new council spending in the city, with the exception of protecting vulnerable people and statutory services, after the council admitted it had an estimated £760 million equal pay liability.
The authority previously said it does not have sufficient resources to cover the potential liability and has also identified a budget shortfall for the current financial year of £87 million, which is projected to rise to £165 million in 2024-25.
A team of commissioners, led by Max Caller, was appointed by Mr Gove earlier this month to help the authority tackle its financial issues.
