New figures and other information analysed and provided by the BBC Shared Data Unit and BBC Local News Partnerships show that local authority debt around the UK has reached staggeringly high and dangerous levels. The Public Accounts Committee in Westminster says residents face an “extreme and long-lasting impact” on local services as a result.
Data from the Department for Levelling Up on what UK councils owe to lenders gives a total of £97.6bn as of September 2023, which works out at £1,141 for each resident. This increases to £122bn/£1,823 if other local authorities – such as combined authorities and crime and police commissioners – are included. The total debt for local authorities in Wales is £5,684,341,000, £1,830 for every resident.
That’s billions, not millions. Who is to blame for this mountain of local authority debt? And what are the ramifications?
There’s a hole in my bucket
The austerity introduced in 2010 by David Cameron, George Osborne, and the then-coalition government has had major impacts on everyone in the UK not cushioned from it. But even those with plenty of money have to drive on roads with ever-worsening potholes, or might face fewer bin collections or increased fees and charges for local public services, imposed by councils desperate to find savings when everything has already been cut to the bone.
The traditional source of income for local government has been charges, council tax, fees, grants, and rates. But grant funding from central to local government has been reduced by 40% in real terms since 2010, and such a loss couldn’t simply be passed to residents to make up. Those combined sources were no longer enough.
So councils were advised by central government to borrow money and to invest in commercial property as varied as cinemas, energy companies, housing developments, office parks, and shopping centres. This required ever-higher levels of borrowing, mostly through the Public Works Loan Board (PWLB), which is operated by the UK Debt Management Office on behalf of HM Treasury. And this made it ever more difficult for some local authorities to balance their budgets, as they are required to do by law.
The Public Accounts Committee chair, Dame Meg Hillier, said in 2020 that the government was “blind to the extreme risks” of mounting local authority debt. More recently, she described the level of borrowing as “staggering”. Birmingham, Croydon, Nottingham, Thurrock, Slough, and Woking councils have effectively declared themselves bankrupt. The credit rating agency Moody’s warned that other local authorities are likely to do the same, “under pressure from the falling value of commercial property investments they had made, high inflation, rising interest rates, and ballooning demand for social care services”.
Local authority debt in Wales
Despite all of this, Local Government Information Unit (LGiU) research has found that 52% of local authorities plan to increase borrowing to balance their budgets and keep services going. Only 10% of all councils in the UK, 38, had no borrowing as of September 2023. None of these are in Wales. The debt levels in Wales are as follows:
Debt is not necessarily problematic. Some English local authorities have issued statements saying as much in response to these figures. Spelthorne, the council with the second highest average debt per resident, said that “debt is sustainable as income generated by the assets associated with the debt comfortably exceeds the financing cost of the debt, which is steadily being paid down on a year-by-year basis”.
Warrington, with the third highest average, said: “Our approach has always been in line with policy aims of economic regeneration, increasing affordable housing supply, and climate change. For example, one of our most significant investments, Birchwood Park, supports 6,000 local jobs, more than 150 businesses, and equally generates income through rent collection rates at 99%, which is used to support council services … We believe our level of borrowing is sustainable as it is asset-backed, and our current PWLB portfolio has an average term of 23 years, which reduces the risk of exposure to interest hikes.”
The District Councils’ Network also defends the utility of investment and debt. But clearly not all councils are, or can be, so bullish.
Passing the buck for local authority debt
The Local Government Association said: “Councils have faced a choice of either accepting funding reductions and cutting services or making investments to try and protect them. This was an approach encouraged by the government … the majority of council borrowing is focused on investing in projects that contribute to local economies or help them provide core functions.” But it added: “The government needs to come up with a long-term plan to sufficiently fund local services.”
The Department for Levelling Up said: “Local authorities have freedom to set their own capital strategies, on the basis that they’re best placed to understand local needs, consistent with devolved decision-making and accountability. The system has worked well for the majority. However, a small number of authorities have taken on excessive levels of risk with debt and investments.”
The LGiU is an independent think tank and membership body supporting innovation in local governance. Its chief executive Jonathan Carr-West said: “It’s public money. Why isn’t the PWLB putting a brake on this rather than allowing councils to keep borrowing to dangerous levels? In Germany … they’re only allowed to borrow up to a certain percentage of their financial size. We don’t have anything like that.”
“We need to look at the bigger picture of how we fund or don’t fund local government and local public services … only 14% of council leaders have any confidence in the sustainability of the local government finance system … When a council goes bust, central government has to step in. It would be better to act before failure.”Jonathan Carr-West
Dame Hillier warned, “the impoverished state of the local financial audit landscape has left the vast majority of English local authorities without signed-off accounts. There is a potential as a result for financial disasters to grow undetected at other local authorities.”
Andy Carter, Conservative MP for Warrington South, has referred to Warrington Council as operating “like a hedge fund” rather than a council, saying, “we have [them] making decisions on investments with £1.8bn at stake … they need to ensure they’ve employed the right people.” But it was Mr Carter’s government that reduced local government funding by nearly half since 2010 and encouraged councils to become “entrepreneurial” instead.
It’s reminiscent of Lee “30p” Anderson MP telling people to learn to cook and budget better. The Trussell Trust, supporting the largest food bank network, had around 35 in 2010–2011, 650 in 2013–14, and nearly 1300 by 2019–2020. It all looks an awful lot like making people poor then telling them they’re doing poverty wrong.
Local authorities blame central government for defunding them. Central government tells local authorities to be better at making their own money. Meanwhile billions are thrown at failed public projects, freeports, unchased Covid fraud, payouts to ministers who were in office for a heartbeat, helicopter trips, and so much more. The UK government is “reported to have wastefully spent or dubiously allocated £99,418,907,782 since 2019.” That could almost pay off all local authority debt.
Show me the money
We receive stories by the Local Democracy Reporting Service daily. Few are about local authority debt per se. Many are about Welsh councils struggling to balance the books, being asked to do ever more with ever less, and having to pass the hat to cash-strapped residents, as Westminster gives Wales ever less. Today alone:
- Vale of Glamorgan Council voted for a 6.7% increase in council house rent.
- Swansea Council leader warned, “there just isn’t enough money in the system”, as finance chiefs struggle to balance their budget.
- Powys residents face a “significant increase” in council tax while services get worse, a senior councillor said.
The Welsh Local Government Association states: “Local council services bore the brunt of austerity and didn’t recover; local government funding (AEF less transfers) has reduced by 12% after adjusting for inflation. Excluding funding for social care, local government funding has fallen by 32% … Over a decade of cuts has seen the loss of assets, facilities, and services that have been a core part of communities for generations … they are unlikely ever to be replaced.”
The people of Wales are being asked to pay more for less, and also receive reduced financial and other support from non-devolved public services. Austerity was introduced to bring down the national debt. Yet that debt, over £1tn in 2011, is now at £2.5tn, 96% of GDP, around £37,900 per person.
The money Wales is owed for HS2, the DUP deal, long-term under-investment in rail, and more, could easily clear its local authority debt. But that’s not forthcoming either. It appears that perhaps we’re asking the wrong question here. Not, “Is staggering local authority debt a problem?” But, “Where’s all the money gone since 2010? Show me the money.”