The huge rise comes after the local authority effectively declared bankruptcy last year and needs to save £300m by 2026. The council will also make job cuts and reduce spending on everything from adult social care and the arts to bin collections.
Birmingham City Council isn't the only town hall in financial trouble. One by one, councils are saying they're on their knees, with Nottingham City Council the latest to go bust in November 2023. But what does it mean for residents' pockets when this happens?
Here, Which? takes a closer look at the problem and how it affects people living in those areas.
How many councils have gone bust - and why?
Technically, a council can't actually declare bankruptcy. Instead they issue what's called a Section 114 notice. After that, they can't commit to any new spending and must come up with a fresh budget within 21 days.
Northamptonshire, Croydon, Thurrock, Woking, Slough, Nottingham and Northumberland have all issued Section 114 notices since 2018. And we're likely to see more over the next year. One in five council leaders in England believes they are likely to declare bankruptcy in the next 15 months, according to the Local Government Association.
There are various reasons why a council might fall on hard times and it's not always because of financial mismanagement. For Birmingham, Europe's largest local authority, it was a £760m equal pay claim and a botched new IT system that eventually sunk the ship.
Sharp cuts to government funding during the first half of the 2010s also helped push some councils over a financial cliff edge, claims the Institute for Government. It found funding for local authorities fell by 10.2% in real terms between 2009-10 and 2021-22.
The think tank estimates that this led to an average fall in spending power of 31% during the same period, not including Covid grants. At the same time, demand for council services such as children and adult social care has surged.
As a result of these pressures, councils have looked to other sources of income, such as investing in commercial property. But record-high inflation and soaring interest rates have meant some of these assets were not the cash cows councils hoped them to be. When Croydon issued a Section 114 notice in 2022, for example, it was partly down to the financial impact of its investment in the delayed Brick By Brick housebuilding scheme.
A spokesperson for Croydon Council told Which? that all local authorities are facing 'unprecedented challenges', but in Croydon 'this is compounded by the legacy of historical financial and governance mismanagement which led to the council’s financial collapse in 2020 and has saddled the borough with a £1.4bn general fund debt burden.
'This debt costs us £62m to service every year before we can begin to spend on local services.'
Find out more:Are bankrupt councils becoming more common?
So how common is it for a council to issue a Section 114 notice? Data complied by the Institute for Government shows councils have issued them 14 times since the Local Government Finance Act 1988 became law. The first was issued by Hillingdon and the second was Hackney, both in 2000.
While that doesn't sound like a lot over the space of 35 years, it's become more frequent. Data shows 71% of all Section 114 notices were issued in the last six years.
Some councils have found themselves in hot water more than once, too. Croydon has issued the notice three times since 2018 - more than any other council - and Nottingham has done so twice.
What happens next?
When a council declares effective bankruptcy, there are various ways they can stay afloat:
1. Help from central government
The UK government will sometimes intervene in a struggling council's management. That can be in the form of giving direct instructions to make changes or the temporary appointment of commissioners to help run the local authority. The latter happened in Nottingham last week, after the city council issued a Section 114 notice on 29 November 2023.
In some cases, the government will step in to 'bail out' a council with extra funding to cover in-year deficits or to repay some of their loans. However, the Institute for Government says this is rare.
The government is under increasing pressure to step in and boost funding to councils now, before more go bust. In response, levelling up secretary Michael Gove has confirmed that English local authorities will receive an extra £600m in funding.
A total of 19 councils, including Birmingham, Woking, Thurrock, Slough, Nottingham and Croydon, will also be given special permission to sell property and other assets to pay for services next year. Local authorities are usually banned from doing this. The move will allow these cash-strapped councils to raise up to £1.5bn.
2. Council tax rises
One of the main ways local authorities try to fill major funding gaps is by hiking council tax.
The cap for rises in England from this April remains unchanged from the 2023-24 financial year, at 5% for authorities with responsibility for social care.
Some councils that are in financial trouble are given special permission from the government to raise rates by even more.
After issuing a Section 114 notice last year, Croydon council was allowed to increase council tax by a whopping 15% for 2023-24. This year, four councils which have previously issued Section 114 notices declaring effective bankruptcy – Birmingham, Woking, Slough and Thurrock – were told they could raise council tax by 10%.
3. Spending cuts
Unfortunately, councils that find themselves in serious financial trouble often have little choice but to reduce spending on public services to make savings.
Because councils have a statutory duty to provide certain services, such as social care, their powers to curb funding are limited. Instead, local authorities may look to make cuts to other areas which they don't consider essential.
In Birmingham, for instance, the council has slashed its arts budget by 100%. Draft budget documents published last week also describe plans to cut £51m from children's services. Bin collections will also be reduced to fortnightly and street lights dimmed to save £900,000.
Other councils are already planning cuts to avoid going under. A survey of senior council leaders and officers by the Local Government Information Unit, with responses from 128 authorities in England, found one third of councils plan to cut spending on parks and leisure. Another third intends to cut arts and culture and one in 10 will cut services for children with special educational needs and disabilities.
What to do if you're struggling to afford council tax
There are a few things you can do if you're struggling:
Contact your local authority:Apply for hardship relief:Apply for council tax reduction:Other ways to reduce your council tax bill
Depending on your circumstances, you may qualify for a council tax discount of 25%. You can get this discount if you live alone or with others who are 'disregarded' for council tax purposes, such as full-time students. Other reductions may be available on empty properties, as well as second homes and holiday homes. These discounts aren't applied automatically, so if you think you fit the bill, you’ll need to write to the council and make your case.
Reviewing your council tax band is another option if you think the original valuation of your home might have been wrong, or changes made to the property's use or size since its valuation might alter the band it should sit in.
source https://www.which.co.uk/news/article/what-happens-when-a-council-goes-bankrupt-aLgAx5x1Wrt9