Which councils will go bust next?

25 February 2021/No Comments
By Nick Dunbar

As front line providers of public services, UK local authorities have borne the brunt of Covid-19. But the pandemic has also brought previous financial mismanagement to a head. In particular, a bubble in short-term lending between councils to fund long-term property investment has troubling echoes of 2007-8.

Late last year, the London Borough of Croydon issued a Section 114 notice, indicating that it was on the brink of insolvency, with a £60 million hole in its accounts. The UK government, which has never allowed a council to default, bailed out Croydon at the price of hefty budget cuts and increased oversight.

On 8 February, the head of the Chartered Institute of Public Finance & Accountancy, Rob Whiteman, told MPs that 12 more councils were in secret talks to receive similar government bailouts. But who are these councils?

Using a financial sustainability approach previously applied to sovereigns, Risky Finance has identified the most likely candidates in England. If our predictions are correct, Birmingham, Plymouth, Slough, Surrey, Blackpool and Hull could be next in line for the government’s bailout-plus-austerity prescription. The costs to UK taxpayers will run into the billions.

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