With news that the largest local authority in Western Europe has declared bankruptcy, many councils in the South East will be nervously looking over their shoulder.
It’s no great secret that local authority funding has been cut significantly since 2010, primarily as a result of a 17.5% real-terms cut in central government grants. However, what has been less publicised until recently is how many councils responded, with some engaging in risky and speculative activities which are now catching up with them.
The issue is particularly pronounced in the South East. The ratings agency Moody’s recently published a list of the 20 councils with the highest levels of debt to their size and half of them are based in the region.
Top of the list, Spelthorne Borough Council in Surrey has borrowed more than £1 billion to acquire commercial property and now has debts that are 87 times its annual income. Meanwhile, nearby Woking Borough Council has declared bankruptcy after racking up more than £2 billion in debt to fund speculative regeneration projects which have turned sour.
But these are only the most extreme examples. Across the country, and particularly across the South East, many more authorities will be feeling the squeeze as finances continue to tighten whilst demand grows.
Whilst the travails of local authority finances may not seem overly concerning for business, the impact could materialise in more ways than is immediately apparent.
The biggest concern is that local authorities who are feeling the pinch will look for efficiencies and that could lead to a cut back in headcount and a cut back in services.
On headcount, as we have seen since 2010, cuts tend to fall on the departments not involved in frontline service delivery and this has undoubtedly led to a reduction in expertise and capacity in key departments such as planning and regeneration.
Since 2010, the Institute of Fiscal Studies estimates that local authority net spending per person on planning dropped by 59% – the highest of any service. This has contributed to the gridlock in our planning system and presents real challenges for the South where land is at a premium and available plots for housing and commercial development are in short supply.
Further cutbacks in local authority services could also affect businesses negatively. Councils are responsible for a range of local services such as waste collection, libraries and parks and, to varying degrees around the country, some elements of transport, housing and education. However, their biggest service area, their biggest area of expenditure and potentially the biggest impact on business will be around social care.
Since the pandemic, more than 300,000 working-age people have disappeared from the workforce and one of the primary reasons is believed to be a lack of available or affordable social care. According to the ONS, the largest reason for this amongst people aged 50-64 is because of ‘sickness or caring responsibilities’.
This is on top of significant underemployment of people with disabilities or with other caring responsibilities, particularly women. Research shows that 38% of young women with caring responsibilities found it difficult to even apply for a job due to the associated costs, such as travel to and from work.
With the jobs market already constrained, any further pressure on social care should be a real concern to businesses, that are already struggling to recruit staff. Businesses in the South East should be watching the unfolding crisis in local authority finances with concern.
