Too Big to Fail?

How councils are cutting local services to fend off bankruptcy

While the media has focused on the growing funding crisis and the increased A&E waiting times in the NHS this winter another, perhaps larger crisis, is developing in local government across England.

With so many different types of local government (county, district, London borough and metropolitan) with different responsibilities for local services across the country, it can be confusing to understand what local government actually does in an area. It’s safe to say, however, everyone in some shape or form uses council services every day, from roads to adult care to leisure centres to children’s centres. Local authorities are simply too important to fail.

Last week Northamptonshire County Council became the first local authority for two decades to issue a Section 114 notice. Section 114 means they are effectively bankrupt, and the Council will now only be providing what statutory they have too.

This announcement has not really been a surprise for many in the sector. While there are maybe local reasons for Northampton's situation, years of reductions in funding from central government and an increased demand for services has placed an unprecedented strain on all council budgets.

Ten years of austerity cuts means that this year is seen as the tipping point for funding these local services. Data collected on 150 local council budgets for 2018/19 by The Bureau of Investigative Journalism (BIJ) calculates that spending cuts of £1.6 billion are required to balance the books. Local councils legally have to balance the books.

So how many councils are likely to fail?

Since 2013/14 Northamptonshire’s financial reserves reduced by 68% and this has been seen as one of the key factors for its current crisis. That “it depleted its reserves in an unwise manner”

It may have spent its reserves badly, but as the graphic shows below, Northamptonshire wasn’t the only council that reduced their reserves in the last few years. And perhaps if you have larger reserves, because you’ve been well funded (more on that later), and so have been able to save, you can then spend more reserves in the tough times to see you through.

From the 150 budgets for next year, the Bureau of Investigative Journalism has calculated each councils funding gap — by adding the proposed spending cuts and reserves to be used. To add context this is calculated as a proportion of the councils last budget. The graph below plots the data in a scatterplot to potentially identify the councils of a higher risk of financial problems. The size of the circle is the size of the population.

For county councils, the majority have some sort of funding gap, with the average being around 7 per cent. The obvious outlier being Surrey County Council with a funding gap of 16 per cent.

The majority of district councils, where overall budgets are lower as they don’t provide adult or children’s care, have a funding gap of only around 1 per cent. However, district councils are dominated by a large number of outliers: Carlisle at 33 per cent, High Peak at 38 per cent and Mansfield at an amazing 63%.

How about London? The boroughs show a wide range in values with Westminster having the highest gap at 21 per cent.

The main strain on budgets in county councils like Northamptonshire has come from increased demands in adult and children social care. The graphic below outlines the change in spending on adult social care (which is in orange, and the changes in all other budgets are in grey). This compares the actual spend in 2013/14 with the forecast of what the council would spend with 2017/18.

Even with increased demand for services, and an ageing population, slightly more councils have reduced their budgets than increased over the last four years.

In contrast for children’s social care, which is in red and the changes in all other budgets are in grey, the majority of county’s have actually increased spending.

Finally, with the advent of academies and the move away from local authorities running schools, expenditure in education services, which is in blue, and the changes in all other budgets are in grey, has seen steep falls in all but three councils.

Analysing how existing budgets are being cut is perhaps looking at the issue from the wrong place. It assumes that a particular council budget is fair in the first place. That all councils are receiving the right amount of money to fund local services, and there is a direct link between need and the budget.

The graph below outlines central government funding per resident for county councils and compares it against the deprivation in the area. The further left to the graph a county is, the higher the deprivation in the area. If funding was indeed linked to need, then we would expect to see a clearer correlation.

We don’t.

For example, Surrey has high funding per resident but low deprivation. Lincolnshire has low funding but high deprivation. No matter what indicators for need you use, a similar pattern emerges. What seems to matter most in the current formula is a heavy focus on past spending levels.

Here Rob must declare an interest in that he works for a County Council that receives the least amount of funding in England. If Leicestershire was funded at the same level as Surrey, it would be £104 million per year better off. More than enough to stop Leicestershire’s cuts.

The government is considering how to best fund local government. This is an incredibly political decision. Some sort of compromise will have to be reached. The suggestion is there needs to be more money put into the system, and this should be used to bring the lowest funded up to where they should be. Rather than taking away from those that currently have higher funding.

Ok, it’s obviously difficult to predict how many councils will fail. But when over the next few months another council issues a Section 114, consider whether this is financial mismanagement, increase in demand for services or a funding system that is out-of-date, complex and unclear and ultimately unfair.

Update: 8th Feb — The Bureau of Investigative Journalism has discovered that the reserves data published by the DCLG, and shown in the first graphic contains significant errors. So the reserve data is now using a different calculation by comparing the outturn data. This has changed the councils in the top 5. I’ve changed the analysis to reflect the change. Northamptonshire is now in the top 5.

Methodology and Sources

A hack day at Coventry University on the 3rd Feb 2018 organized by The Bureau of Investigative Journalism to explore and understand the data that they have gathered on local council budgets.

Easymorph to reshape the data, scaffold the data and to union Excel sheets together.

Graphics using Tableau. Stacked bars viz using the techniques from by Steve Wexler.