Good morning. More English councils have declared effective bankruptcy in the last 18 months than did so in the previous 30 years. One in five council bosses say it is likely they will follow suit by March next year. Local authorities have faced severe financial difficulties for the last decade or more – but now, reeling from the same inflationary pressures that are pushing the cost of living up for everyone, they are facing a tipping point.
As John Harris noted earlier this month, the route to this state of affairs is not mysterious: it is the result of a 40% real-terms cut in central funding between 2010 and 2020. This week, a Guardian series, Councils in crisis, has examined the fallout from that situation. Richard Partington has already reported that a £2bn hidden tax rise will be landing within a matter of months. Now he reveals that councils are to be encouraged to sell publicly owned buildings and other assets worth up to £23bn.
For today’s newsletter, I spoke to Richard about how the government is asking local authorities to pick up the tab for much of the shortfall it has bequeathed them – and whether councils can cope with the continuing crisis. Here are the headlines.
Five big stories
Pakistan | Former prime minister Imran Khan has been sentenced to 14 years in jail in a corruption case, just a day after he was given a 10-year sentence for leaking state secrets. Khan, who was toppled from power in 2022, has claimed that the mounting cases against him are politically motivated.
Health | The NHS is in such a dire state the next government should declare it a national emergency, experts are warning, as it emerged that record numbers of patients are being denied timely cancer treatment. The BMJ’s commission on the future of the NHS concluded that “the health service is in crisis, stretched beyond breaking point”.
Northern Ireland | Sinn Féin’s leader has said a united Ireland is “within touching distance” as the party prepares to claim the post of Northern Ireland first minister for the first time. Mary Lou McDonald’s comments came after a deal between the Democratic Unionist party and the UK government that is expected to restore power sharing at Stormont.
Labour | Keir Starmer’s office has begun polling British Muslim voters amid growing concern in senior Labour ranks about the damage done to their core vote by the row over the party’s position on the Middle East. Senior party figures fear that if the polls narrow, the problem could mean losing more than a dozen seats.
Elon Musk | A judge in the US state of Delaware has ruled in favour of investors who challenged Elon Musk’s $56bn (£44bn) Tesla pay package as excessive, concluding that the company’s board never questioned whether the arrangement was necessary to retain the billionaire chief executive. The package was by far the largest ever compensation deal for a company executive.
In depth: ‘Well-run authorities are at risk of going bust through no fault of their own’
Legally, councils can’t declare bankruptcy: instead, they issue a section 114 notice, saying they cannot balance their budget, and are barred from any new spending until the situation is resolved. That tends to mean council tax rises and significant cuts to services that the local authority is not obliged to provide by law.
Nottingham issued a section 114 notice in November. Jessica Murray’s piece anatomises the consequences for people who live there: care homes, playgrounds and youth centres swiftly closed, new charges for public toilets and garden waste collection, and cuts in arts funding and to the library system. “I’m a bit scared for the city,” Ross Bradshaw, who has campaigned to save local libraries, told her. “And I’m worried people don’t know it’s happening. OK, at the micro level it means we’re going to have to pay to pee, but at a bigger level it’s the destruction of local government.”
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How bad is the situation for councils?
Very bad, as this analysis by the Guardian’s data team shows. Since 2010, the worst affected councils, including Great Yarmouth and Pendle, have seen a 50% reduction in their core budgets. Overall, councils have about 10% less spending power than they did in 2010. Lots of bleak numbers tell a small part of the broad story: 49 council areas have seen 50% cuts to housing services since 2010. England has lost 400 swimming pools over the same period. Cultural spending has dropped by 43%, and road and transport spending by 40%. More cuts are expected this year.
In the last couple of years, global inflationary pressures – and rising interest rates to service council debt – have pushed an already creaking system to the brink of collapse. “As bad as it already was, the number of councils effectively declaring bankruptcy has gone way up,” Richard Partington said. “Councils of all political colours are under immense financial pressure. But the reduction in central government funding has the biggest impact in lower income and urban areas, which tend to be Labour-run.”
The Institute for Government notes that there is no correlation between which party controls a council and its likelihood of issuing a section 114 notice. It lists 12 notices issued by eight councils since 2018, after only two in the previous 30 years. As well as revealing that one in five councils fear having to do the same in the near future, a survey of council leaders and chief executives by the Local Government Association found that half are concerned they will not have enough funding to fulfil their legal duties next year.
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How did this happen?
It is hard to look past the extent of the reduction in central government funding since 2010. “That is, first and foremost, the reason for the current situation,” Richard said. “But meanwhile councils have been asked to do more with less – there is a rising demand for council services, with an ageing and increasingly unwell population. Adult social care and children’s services have seen a huge increase in demand. Then you have the huge increase in inflation, which councils are not immune from.
“The government is keen to point to the councils issuing section 114 notices that have made pretty bad mistakes – Birmingham is a high-profile example. But while those have been the most prominent, a vast number of well-run local authorities are now at risk of going bust through no fault of their own.”
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What is the government planning to do about it?
Michael Gove, the levelling up secretary, has announced £4.5bn in new local government funding for England – a package that was increased by £600m last week in response to threats of a Conservative backbench rebellion. That is an increase to budgets of about 7.5%; the general view among council leaders is that the money is a welcome boost but will still leave very painful decisions on which services to cut.
Crucially, though, the government is not providing all of that money itself. “Gove is very keen to talk about that £4.5bn number,” Richard said. “What he’s less keen to say is that close to half of that isn’t coming from new central government money – it’s based on an assumption that local authorities will increase council tax by the maximum allowed, 4.99%. If every council in the country does that, it’s worth just over £2bn.” That amounts to about £100 more a year on a typical band D council tax bill.
Meanwhile, Gove’s department is also working on plans to give councils greater flexibility to sell more publicly owned buildings and other assets. This piece looks at some of the assets already being considered for sale, ranging from a civic hall to a former museum.
The government says this should only be about selling off buildings owned to bring in revenue, rather than those used for the “delivering of the objectives of the local authority”. But critics call it a “fire sale” in a weak property market. Rob Whiteman, the chief executive of the Chartered Institute of Public Finance and Accountancy, told Richard: “You would not recommend to any other country in the world to fund their public finances this way. It’s a sort of directive to break the rules.”
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Who will pay for it?
The tax increase – ultimately made inevitable by central government decisions, even if they aren’t the ones pulling the trigger – is likely to come alongside vaunted tax cuts in Jeremy Hunt’s forthcoming election year budget. But council tax is much more regressive than income tax, because it is based on outdated property valuation bands set in 1991 and not pegged to pay.
“To benefit from an income tax cut, you need to be working, and typically higher paid individuals do better,” Richard said. “But council tax is a relatively flat tax. With some limited exceptions, almost everyone has to pay it. So if you cut income tax while letting council tax rise, it’s lower income households who are worst affected.”
The issue is exacerbated by the fact that worse-off areas typically have greater needs for council provision despite their smaller tax base. Richard points to an example of how that plays out from the Northern Powerhouse Partnership: a house in Hartlepool worth £150,000 pays over £200 a year more in council tax than someone in Westminster in a property worth £8m.
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What else happens if more councils go bust?
In general, any council tax increase above 5% has to be approved by a referendum – which has never happened. Councils that issue section 114 notices may have larger tax rises approved without having to put the matter to a vote: for instance, Croydon was allowed a 15% rise last year, and Birmingham and Woking both got 10% extra. “And the deep cuts to services that you’re already seeing are going to spread further across the country,” Richard said.
One question is who the public will blame. “We saw in the 2019 election how the decimation in local services was blamed on a local Labour MP or council, even though the Conservatives had been in power since 2010,” Richard said. “There is still a view out there that local councils are wastefully run.” But if the problem does spread across the country, the government may find it harder to rebut its own role in the crisis, he added. “With the situation becoming so acute, you wonder whether where people place responsibility is going to change.”
What else we’ve been reading
Britain’s dental crisis is spinning out of control. Coco Khan looks at why and spoke to the people most affected. Nimo
This remarkable visual investigation focuses on three neighbourhoods in Gaza (pictured above) to explain the extent of the devastation wrought by Israel in its war on Hamas. Archie
Lois Beckett went to Venice Beach where small white flags with irritated messages scrawled across them have been left on pieces of dog poop, scolding owners who fail to pick up after their pets. No one knows who the vigilante behind the messages is, but residents are delighted. Nimo
“Dadcasts” are ruining a once vibrant medium, the very wise and handsome author of this piece suggests. Archie
John Seabrook’s interview in the New Yorker (£) with music industry giant Lucian Grainge is packed full of stories from Grainge’s 45-year-long career. The record executive has always had a nose for the next big thing, generating billions of dollars for the labels he has worked at by using emerging technologies not running away from them. Will he be able to do the same with generative AI? Nimo
Sport
Premier League | Arsenal closed the gap on leaders Liverpool with a 2-1 Premier League victory at Nottingham Forest to kick off the midweek fixtures on Tuesday, while Luton Town moved out of the relegation zone with a 4-0 rout of Brighton & Hove Albion. Fourth-placed Aston Villa suffered a 3-1 home defeat by Newcastle United, Crystal Palace came from behind to beat visiting Sheffield United 3-2 and struggling pair Fulham and Everton fought out a 0-0 draw at Craven Cottage.
Women’s Champions League | Chelsea swept past Paris FC to finish undefeated at the end of the Champions League group stage, having already secured passage to the quarter-finals. Goals from Fran Kirby, Mia Fishel, Guro Reiten and Maren Mjelde secured a 4-0 win and confirmed the home team exit the competition.
Cricket | England coach Brendon McCullum has revealed that the 20-year-old Shoaib Bashir is in contention for a possible Test debut against India this week and an all-spin attack is not out of the question. After a stunning 28 run win in Hyderabad, Jack Leach is now facing a race to be fit for Friday’s second Test after sustaining a badly bruised left knee.
The front pages
“State of NHS should be declared national emergency, experts say” is the Guardian’s lead story today. The Financial Times has “IMF warns Hunt against tax cuts in spring budget” – he must be listening because the Times says “Little room for big tax cuts, Hunt tells Tories”. The i trumpets an “Exclusive … Cameron didn’t clear two state solution speech with No 10”. “Navy ready to send carrier to Red Sea” – that’s the Daily Telegraph while the Daily Express has “Migration rules WILL halt shock population rise”. “Bashir: I was a victim of racism inside the BBC” reports the Daily Mail. “Where’s the Money?” – the Daily Mirror highlights the “Mone” in money as it tracks Lady Michelle’s husband, Doug Barrowman, to Spain where he’s been taken to court. “Dawn of the cyborg” – the Metro attaches profound implications to Elon Musk’s Neuralink putting a chip in someone’s brain.
Today in Focus
What’s gone wrong at Boeing?
A terrifying mid-air blowout of a door plug at 16,000 feet (4,900 metres) left passengers fearing for their lives on an Alaska Airlines flight earlier this month. It’s just the latest crisis for Boeing - so what has gone wrong? Jeff Wise and Gwyn Topham report
Cartoon of the day | Martin Rowson
The Upside
A bit of good news to remind you that the world’s not all bad
Anne Thorne was hanging out with some friends who were discussing their elderly parents, when she realised the lack of autonomy older people have when it comes to their care later in life. She knew she did not want that for her or her husband. That conversation was in 2006 when Thorne and her friends were in their 40s – in the years since they have all come together to find a plot of land on which to build a co-housing community. Every corner of the eco-village has been thoughtfully designed, such as the rainwater pipe that flows on to porous tarmac. A tank underneath then catches the overflow, which runs into a flower garden and down into the pond. The commune is aimed at tackling the climate crisis and loneliness in later life – and for the residents it has achieved both of those goals.
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Bored at work?
And finally, the Guardian’s puzzles are here to keep you entertained throughout the day – with plenty more on the Guardian’s Puzzles app for iOS and Android. Until tomorrow.
