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Councils at Risk

10 January 2019

Over a third of councils are at risk of financial failure within the next 10 years, claims Grant Thornton

New research from the firm discovered that 36% of English councils run the risk of financial failure within the decade, with one in five (17%) of councils risking failure by as early as 2021.

Grant Thornton used its new Financial Foresight tool, the tool looks at councils’ long-term baseline financial forecast, and then labels a council “at risk” if their reserve levels are (or lower than) 5% of the total expenditure.

Some 78% of London Boroughs face failure, making them the most vulnerable in the survey. Metropolitan Councils were next, with 50% being vulnerable, followed closely by unitary authorities at 49%.

However, one sector appears to be relatively safe – district councils. Only 21% of these are at risk, which is predominantly due to district councils not being responsible for various social care services that their counterparts are.

Paul Dossett, Grant Thornton’s head of local government, said:
“The local government sector is facing unprecedented demand and financial pressures, and the risk of financial failure has never been more acute. The very public struggles of Northamptonshire and Somerset County Council’s this year demonstrate the intense distress many councils, and in turn their citizens, are facing.

“Our analysis shows that it won’t be long before others also reach breaking point, with almost a third of all councils found to be at risk of depleting their reserves in the next ten years, if not sooner. Council reserves should only be used to cover the cost of unexpected events and are an unsustainable method of long-term funding. With future funding levels an on-going uncertainty, ensuring their financial sustainability is now the number one issue facing councils.”

“We have seen an inexorable rise in the number of councils dipping into their reserves, as they struggle to balance the twin challenges of continued reductions in Revenue Support Grant and rising demand in areas such as adult social care, children’s services and homelessness. The pressure on these essential services has been widely publicised but now even those universally used services such as parks and pot hole filling are visibly declining in quality. These issues combined mean financial sustainability will continue to be the biggest challenge for local government for the foreseeable future."

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