England’s town halls are being “forced to the pawnshop” in an unsustainable fire sale of assets aimed at temporarily staving off bankruptcy, councils and experts have warned.
Local authorities are preparing to sell off hundreds of millions of pounds’ worth of land and buildings as a long-term funding squeeze shows no sign of being alleviated by the chancellor’s Budget on March 6.
At least 10 councils, including Middlesbrough, Stoke-on-Trent, Somerset, Southampton and Bradford, have applied to the government for “exceptional financial support” to balance this year’s books.
However, they have been told that any such agreement will not come in the form of funding, but instead as permission to borrow and sell off assets to pay for day-to-day services.
Tony Travers, professor in the government department at the London School of Economics, said such an approach to tackling the chronic funding gap was “not normal good government and very bad practice”.
“It’s selling the family silver — you can only use the assets once,” he said. “If you’re forced to the pawnshop, it’s not a good sign. And effectively they’re at the pawnshop.”
English local government has been among the sectors hardest-hit by the government’s austerity programme, aimed at reducing the national deficit through spending cuts, since 2010.
Councils have lost 24 per cent of their core spending power in that time, according to the Local Government Association, the representative body covering county and district councils, metropolitan and unitary authorities and London boroughs.
An analysis by the IPPR think-tank last September estimated that councils had sold off 75,000 assets, with a combined value of £15bn, since the Conservative and Liberal Democrat coalition government initiated its austerity policy.
The think-tank warned that sell-offs would accelerate as more councils ran into financial difficulties, and the government considered easing rules further to allow authorities to use more proceeds of asset sales to meet expenditure needs.
The government said councils were ultimately responsible for their own finances, but it was ready to talk to any authority concerned about its financial position.
“We have engaged with the sector over options to allow councils greater financial flexibilities whilst ensuring every penny of taxpayer money is well-spent, and are carefully considering what proportionate safeguards are needed,” said a spokesperson for the Department for Levelling Up,
Housing and Communities.
While additional funding has been provided to the sector over recent years, it has been eroded by inflation, soaring social care pressures and rises in the national living wage.
The LGA has warned of a £2.4bn funding gap in local authority finances this year and £1.6bn in 2024-25. Councils, which legally have to set balanced budgets each year, are currently agreeing a further round of savings and lists of proposed asset sales.
Somerset council has applied for exceptional financial support and is looking at selling land and commercial investments to help it meet a forecast budget deficit of £100mn in the next financial year.
Southampton city council, which has also applied for emergency support, is considering selling off car parks and other properties in a bid to meet a £37mn budget shortfall.
Meanwhile, Kent county council, which is in deepening financial trouble, put its 200-year-old county hall in Maidstone, Sessions House, up for sale late last year.
“The bottom line is we can’t justify spending several million pounds a year just to keep it standing and running when we have a budget gap which desperately needs filling. It’s so sad, but that’s how it is,” a Kent council official said.
The Special Interest Group of Municipal Authorities (Sigoma), which represents 48 urban councils across the North and Midlands and along the south coast, told the Financial Times that five of its members had applied for exceptional financial support.
However, it added, the likely response from government would simply bounce the crisis into future years.
“The sale of capital assets to pay for day-to-day spending is not sustainable and is in many ways a bridging loan that will pass the costs to future taxpayers and defer problems of underfunding and growing funding gaps to future years,” said Councillor Stephen Houghton, chair of Sigoma and leader of Barnsley council.
“However, many councils have been left with no choice but to apply for exceptional financial support as it is the only route to a balanced budget.”
The alternative for those authorities, he said, was to issue a Section 114 notice signalling effective bankruptcy, which a series of councils have already done in recent months.
Even for those that do issue Section 114 notices, however, asset sales are still on the table. Birmingham city council, which has been placed under the oversight of government appointed commissioners after issuing a Section 114 notice, is preparing to sell off £750mn of assets over the coming two years.