The struggles of AAT members working in local authorities’ finance teams have been laid bare in a report from the Local Government Information Unit (LGIU): The State of Local Government Finance in England 2024.

• Over half of local authorities in England anticipate “effective bankruptcy” within five years, with 9% at risk in the coming year.
• Confidence in the financial sustainability of councils has plummeted from 14% in 2023 to a mere 4% in 2024.
• Inflation and the cost of living crisis were major challenges for over 90% of respondents.
• To cope, 90% of councils are raising council tax, while the same proportion are increasing fees and charges.
• Two-thirds are forced to cut spending on services, leading to costlier services with reduced availability for residents.

Even councils with good financial governance are now at risk (see AT January-February issue, Havering: A council in the eye of a storm). Systemic and structural factors are now affecting the vast majority of authorities across the UK, the report found. As a result, finance teams are overstretched and in a state of continuous crisis management.

“It is no longer possible to ignore or misunderstand the problems local government faces, they are undeniable,” LGIU chief executive Jonathan Carr-West said. He added: “this report, for the first time, demonstrates how widespread councils’ desperate funding situation is. It is impossible to deny there is a structural funding issue.”

Most alarmingly, almost one in 10 (9%) of the 128 councils surveyed warned they expect to issue a Section 114 notice — effective bankruptcy — in the next 12 months.

The report also identified that financial resilience among councils is at an all-time low, after more than half of respondents drew on their reserves this financial year and plan to draw on them again in the upcoming year. Just 4% of respondents said they felt confident about their organisation’s finances.

One respondent told the LGIU: “The situation is catastrophic and is posing an existential threat to local government.”

In terms of possible solutions, the overwhelming majority of councils surveyed favour multi-year funding settlements from central government, ending competitive bidding for additional funding and retaining 100% of business rates generated in their jurisdictions.

Another survey respondent highlighted the urgent need for action: “Difficult decisions will need to be taken about what the role of local government is in future and how it will be funded, but trying to avoid making those decisions is now proving more damaging and risks more local authorities reaching a point of financial failure.”

AAT’s response

Jonathan Gorvin, AAT’s Executive Director of Strategy and Compliance, commented:

“We are deeply concerned at reports that many local authorities could face significant financial difficulties over the next five years. The situation is increasingly urgent and must be taken seriously by central government. It is shocking that a sizeable number of local authorities are already at breaking point.”

“Our members working in local authorities in England have been on the front line of trying to make a difficult complex funding landscape work, and we recognise and support the great work and value they bring in creating more efficient and effective councils”

A key challenge for Councils will be attracting and retaining talent in such challenging circumstances, particularly in critical professions facing a skills shortage, including accountancy. More councils filing section 114 notices, effectively going bankrupt, could see local governments miss out on recruiting and retaining the accounting technicians and bookkeepers, whose valuable skills were in high demand right now, he said.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.