Deputy prime minister and housing secretary Angela Rayner has authorised six English councils to increase Council Tax by up to 10% starting in April surpassing the standard 5% cap which typically necessitates a local referendum.
The affected councils are Labour run Bradford, Newham, Trafford and Birmingham and Liberal Democrat controlled Windsor, Maidenhead and Somerset.
These councils and 15 others whose similar requests were denied are grappling with financial instability which has led to such unprecedented requests for exemptions for Council Tax caps and appeals for exceptional financial support.
Rayner emphasised the necessity in respect of these difficult decisions, to balance fiscal responsibility with taxpayers’ interest, but the reality is that in the absence of this decision these councils, and probably many others would be facing bankruptcy.
The financial crisis in local authorities
Across England local authorities are crumbling under financial pressure.
Councils such as Birmingham, Woking and Nottingham have already issued section 114 notices, affectively gone bankrupt with several others including Kent, Surrey and Lancashire also warning they may soon follow suit.
In truth local councils have been struggling to balance the books for over a decade driven by a number of common factors:
Central funding – 70% of council funding comes from central government but local councils have seen a 40% reduction in funding since 2010 forcing them to rely on Council Tax, Business Rates and commercial investments to fund essential services.
Failed commercial investments – Desperate to generate income a number of councils turned to commercial investments in property, energy and other ventures. The idea was simple – invest money and use these profits to fund essential services. Unfortunately many of these investments have failed and failed spectacularly, leaving councils with crushing debts instead of profits.
| Council | Failed Investment | Financial Impact |
| Woking | Property Speculation | £2bn debt |
| Nottingham | Robin Hood Energy | £38m loss |
| Thurrock | Solar Farm Investments | £200m loss |
| Croydon | Failed Property Deals | £1.6bn debt |
| Birmingham | IT project | £87m loss |
Rising cost of social care – in 2022, 23 councils spent £26.9bn on adult social care. To put it another way social care consumes 40-50% of most council budgets and with demand skyrocketing due to an aging population, inflation and workforce shortages this number is only going in one direction. It goes without saying with this much of their budgets being spent on care services many councils have little financial flexibility left.
What does this mean for advisers?
The message should be clear and simple even if the solution is not. The era of state funded adult social care is quickly disappearing. It is a ‘perfect’ storm although I am reluctant to use the word perfect in this context.
Local authorities are broke; many councils are already bankrupt or on the verge of collapse whereas conversely we have an ageing population and increasing demand for social care.
What we are left as a result is a need to accept the era of state funded adult social care is quickly disappearing.
The financial collapse of local authorities is not a temporary crisis, it is a warning of a broken system that can no longer keep up with demand.
The combination of government cuts, rising social care costs and reckless financial investments has left local authorities on the verge of collapse.
For advisers and their clients this means one thing: relying on the government to fund future adult social care is no longer a viable or sensible option.
The sooner advisers start raising this with their clients and individuals start planning for private care the better prepared individuals will be to secure the support, indeed any support they will need in old age.
The safety net of state support is rapidly disappearing, and it is time that individuals take personal responsibility for the control of their own future.
