Households could face double-digit council tax rate increases. (Image: Getty)
Councils across England are going bankrupt because of poor financial management rather than a lack of funding, according to a watchdog.
Lord Morse, chair of the Office for Local Government (Oflog), said that all town halls in special measures were failing because of poor governance rather than budgetary shortfalls.
Last month Nottingham became the sixth council in recent years to declare itself effectively bankrupt, with fears that more are teetering on the brink.
It has raised fears that millions of households could face double-digit council tax rate increases.
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Soaring inflation and growing demands for services are among the factors blamed for the pressures, but critics point out that some town halls have heavily leveraged their finances to make investments they hoped would bring in more revenues.
As interest rates have increased that has left them struggling to service debts.
Lord Morse, a former head of the National Audit Office, said: “All of the failures that we've seen so far, all of the authorities that are in special measures, are not primarily attributable to a shortage of money; they're to do with failures in management or failures in governance."
“I really can say that quite definitely.”
He warned that councils needed to be “realistic” about how much financial support they could get from the government.
Michael Gove admitted English councils face financial challenges as he unveiled an above-inflation ￡64 billion funding boost earlier this month.
The Levelling Up Secretary announced a 6.5 per cent increase in funding, saying they “carry out tremendous work every day in delivering vital services to the people they serve”.
“We recognise they are facing challenges and that is why we have announced a ￡64 billion funding package to ensure they can continue making a difference, including through our combined efforts to level up,” he added.
However, his Labour shadow Jim McMahon said the package was “a prime example of sticking plaster politics”.
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Nottingham City Council became the latest authority to issue a Section 114 notice, effectively declaring bankruptcy, last month.
It blamed its financial problems on government funding and rising demand for services.
Nottingham City Council forecast a ￡57million black hole in its 2023-24 budget, which was 'partly mitigated' by dipping into the reserves, reducing its spend by more than half to ￡23million.
Council finance boss Ross Brown issued a section 114 notice after fears that the council will not be able to deliver a balanced budget for this year, as legally required to do.
Labour-run Birmingham City Council issued a Section 114 notice in September, as it faced an estimated ￡760 million liability from an equal pay claim.
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Woking council was put into special measures in the summer after it became the UK's "most indebted local authority" with liabilities of ￡1.2 billion against annual core funding of just ￡16 million.
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The debt was largely the result of a failed investment strategy that saw the council borrow hundreds of millions of pounds for regeneration projects that then had to be written down.
Oflog, which covers English local authorities, has created an online tool for people to compare the performance of their council with others.
As well as metrics on social care, rubbish collection and road repairs, it shows the level of debt relative to income and servicing costs.
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