 "Unison in the report noted that eight councils in the UK have effectively declared bankruptcy – known as Section 114 – since 2018.")
UK’s local governments are at risk of collapse.
A new report shows that governments across Wales, Scotland and England are billions of dollars in the red.
This could result in critical services like garbage collection being affected and result in massive cuts to government jobs.
It comes in the backdrop of the new Labour government set to unveil the first Budget of its term on October 30.
But what do we know about this report? Why are the local governments at risk of collapse?
Let’s take a closer look:
What do we know?
The report was put out by Unison – the UK’s largest trade union.
It was compiled based on financial documents in the public domain as well as councils’ estimates of their finances.
The paper warned that local governments faced a shortfall of $5.6 billion in their funding this coming year.
“There is a serious risk of the widespread collapse of local government,” the document read as per CNN.
It also added that the shortfall could nearly double to around $11.1 billion if the financial gaps remain unplugged.
Unison in the report noted the massive shortfall local authorities are facing.
“Councils are required by law to set a balanced budget, which means they must take steps to deal with any funding gaps, a task that’s becoming increasingly difficult. Many councils have been forced to announce job cuts, reduce services, and increase charges to residents and businesses. They have also had to use their own cash,” the paper noted.
Impact Shorts
More ShortsUnison in the report noted that eight councils in the UK have effectively declared bankruptcy – known as Section 114 – since 2018.
It noted that councils shuttered 1,243 youth centers and 1,168 children’s centers from 2010 to 2023.
Meanwhile, the UK closed 1,629 public toilets and another 1,376 libraries in that period.
“Councils are teetering on the brink of financial disaster,” Unison general secretary Christina McAnea said in a statement as per CNN.
Unison predicted that Hampshire, Bradford, Birmingham, Somerset and Leicester councils would face the largest funding gaps by 2025-2026.
Birmingham, the UK’s second-largest city, essentially declared itself bankrupt in September 2023.
These constituencies are followed by Kent, Surrey, Nottingham, Cornwall and Leeds.
Why are local governments at risk of collapse?
Some experts have pointed the finger at the previous Conservative governments’ policy of austerity cuts.
As per Financial Express, Britain first began cutting funding to local governments in the aftermath of the 2008-2009 financial crisis.
Unison quoted the Institute for Fiscal as noting that councils’ funding fell nine per cent between 2010-11 and 2024-2025.
This, despite a substantial increases in demand for services.
“Countless essential services and very many vital jobs are at risk, with terrible consequences for communities across Britain… After 14 years of ruthless austerity, the very fabric of local society is under threat,” McAnea added as per CNN.
“Local authorities were clobbered by the previous government, whose harsh financial settlements left councils with no option but to sell off the family silver, auction off green spaces, close key community facilities and let thousands of workers go,” McAnea told Financial Times.
“There’s an unquestionable need to turn the page on the destructive cuts of the past and prioritise investment in services and staff.”
But others have said this is an oversimplification.
Jonathan Carr-West, chief executive of think-tank the Local Government Information Unit told BBC, “With every council that issues a section 114 there are specific circumstances, there are decisions that have been made that have led them to that point.”
“And it’s appropriate in those cases to ask questions about decision-making, governance, and accounting.”
As per BBC, Birmingham is in the hole due over an equal pay lawsuit and a substandard new IT system, while Nottingham lost millions after council-owned energy firm Robin Hood Energy cratered in 2020. Thurrock, meanwhile, put in hundreds of millions in commercial investments – which were later found to be overhyped. Croydon has inefficient local government and invested in a housebuilding scheme that has been delayed.
But Carr-West did note a “systematic problem” with local government financing.
“Over the last 13 years, we’ve seen the amount of money that central government gives to local government reduced by more than 40 per cent,” Carr-West added.
A UK government spokesperson told CNN the new regime would “fix the foundations of local government.”
“We will get councils back on their feet by getting the basics right — providing more stability through multi-year funding settlements, ending competitive bidding for pots of money and reforming the local audit system,” the spokesperson added.
With inputs from agencies