One of the UK’s largest Conservative-run councils has warned it faces “financial meltdown” and has called on ministers to fix the “broken” local government funding system to avoid it and many other authorities plunging into effective bankruptcy.
Hampshire county council said without a major overhaul of council finances in England – which it admitted was unlikely to come in time to prevent cuts – it would be forced to push ahead with drastic reductions to local services over the next 18 months, and could face insolvency by 2026.
The council has to find £132m by April 2025 to help fill a widening budget gap but has said it cannot rely on operational cuts and council tax rises alone to balance the books without ditching “safe” levels of core service.
A paper to a meeting of the council’s cabinet next week states that “these are not problems we can fix on our own and that the government must intervene if we and the whole of the local government sector are to avoid financial meltdown”.
Hampshire hit the headlines last year after publishing a joint letter with Kent county council to Rishi Sunak warning that failure to properly fund local government in England would see the two councils “sleepwalk into financial disaster”.
The situation has not improved since for either council. Kent’s auditors said last month it may have to issue a section 114 statement of effective bankruptcy, a prospect the council says it is confident it can avoid. The wider picture for local authorities is bleak: Birmingham city council declared itself effectively bankrupt last month and several others have said that is a realistic prospect for them, too.
Havering council in east London, which is run by a coalition of residents’ association independents and Labour, has warned that even pushing through “unpalatable” levels of cuts to services may not be enough to balance its budget, which faces a £23m gap this year, rising to £31m in 2024.
The Havering council leader, Ray Morgon, said in a recent blogpost: “I’m afraid I can’t shy away from the fact that the situation is desperate. We are now at the point where bankruptcy (by the issuing of what is known as a section 114 notice) could happen in the next six to 12 months.”
Hampshire says it will have to drain reserves to meet budget gaps as well as introduce “bare minimum” levels of service to avoid bankruptcy. This would mean focusing solely on services it is legally obliged to provide, such as social care.
At the same time, it would cut or end funding for “discretionary” services, including community transport and museums. Other areas earmarked for cuts include libraries, household waste recycling centres, school crossing patrols and grants to local charities.
The paper to be considered by the council’s cabinet next week says 2025-26 “represents the crunch point for the county council’s budget; either the government steps in with additional funding or legislates to reduce the range of statutory responsibilities that we are required to undertake”.
It says the local government finance system is broken, adding: “Since 2018 the county council has (publicly and consistently) said that without fundamental changes to the way in which local government is funded, it will not be financially sustainable. This position is becoming a reality as we head towards 2025/26.”
The leader of Hampshire county council, Rob Humby, said: “For a long time now, we’ve been very clear about the huge budget pressures facing the county council by April 2025, and, like many local authorities nationally, our budgets are stretched to breaking point.”
He added: “We know that council tax increases alone are not enough to plug the gap, and with no sign of government stepping in to provide a short-term budget lifeline or long-term sustainable funding solution to councils like Hampshire, we must take action now and plan to meet the budget shortfall ourselves.”
The Local Government Association (LGA) estimates councils in England face a deficit of at least £3bn over the next two years, as they juggle rising costs and demand, especially in adult and children’s social care. The LGA chair, Shaun Davies, urged the government to “come up with a long-term plan to manage this crisis”.
A Department for Levelling Up, Housing and Communities spokesperson said: “The Local Government Finance Settlement for 2023/24 makes available up to £59.7bn for local government in England, an increase in Core Spending Power of up to £5.1 billion or 9.4% in cash terms on 2022/23. For Hampshire County Council, this represents an increase in Core Spending Power of up to £90.2m or 9.4% – making available a total of up to £148.4 million in 2023/24.”
