Many councils at risk of bankruptcy due to lack of funding reform

In five years time many councils across the country could go bankrupt, according to local government experts who believe funding reform is desperately needed to stop this.

The simple answer is that funding public services and spending on capital projects comes from two pots of money that cannot cross over. Capital funding is not as strict and councils can take out loans in order to improve infrastructure in their areas. The reason for this is that these projects are seen as investments in the council area and add value - so the £20m that has gone into Rochdale Town Hall is adding £20m of value to the council asset.

“Of all councils, 50 per cent say they will go bust in the next five years. I think that councils that are banking that the next government are going to have to do something about this otherwise things are going to become a complete catastrophe. Unlike central government, local authorities cannot borrow to finance day-to-day spending, and so they must either run balanced budgets or draw down reserves – money built up by underspending in earlier years – so as not to exceed their annual revenue.

Manchester Councillor Rabnawaz Akbar, Executive Member for Finance, said: "We understand why people ask us 'How can you say that the council's finances are under pressure when you are spending large amounts of money on big projects such as the town hall?’ “So it is completely wrong to suggest that if we hadn’t invested money in long-term capital projects such as the Our Town Hall project, which look to the future, we could have spent it on easing the pressures on our everyday budget. These challenges are the product of unfair cuts to our government funding and unfunded pressures, which have left us having to make savings to our revenue budget of £443m since 2010.

Manchester Council wanted to point out that their costs for the town hall project will be spread out over a long period of time, essentially working like a mortgage would for homeowners.

Councils Bankruptcy Funding Reform Local Government Town Hall Renovations Public Services Capital Projects

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