Almost a million households face 15pc council tax rise as two local authorities warn of bankruptcy

Labor-run councils of Bradford and Cheshire East say they may have to issue section 114 notices

Nearly a million households face council tax rises of up to 15 per cent after two more local authorities announced they were at risk of effective bankruptcy.

Bradford Council and Cheshire East Council, both Labor-run, said on Thursday that they may have to issue a section 114 notice, meaning they are unable to balance their budgets by the end of the financial year.

They join councils including Birmingham, Notingham and Working which have already taken the draconian step.

Other authorities which have issued a section 114 notice have in the past been given permission by ministers to increase council tax by up to 15 per cent-adding hundreds to annual bills.

In April, the Government allowed Croydon to increase bills by 15 per cent to pay off massive debts. Thurrock and Slough were both told they could put up bills by 10 per cent.

Normally a council is unable to increase bills by more than 5 per cent without holding a local referendum.

Michael Gove, the relevant minister, has not yet decided whether Birmingham and Nottingham will be allowed to raise taxes. If Bradford and Cheshire East take the same step, he will have to decide on them.

Together, these areas contain almost a million households.

The Local Government Association (LGA) warns that one in six councils around 60-are at risk of issuing a section 114 notice.

On Thursday a group of metropolitan authorities wrote to Rishi Sunak to warn him of a surge in effective bankruptcies unless he makes a last-minute intervention to boost next year’s financial settlement for local government.

Cheshire East Council said it faced potential bankruptcy due to the “devastating impact” of cancelling the northern leg of HS2.

The council covering Crewe and Macclesfield said the authority had spent £11 million preparing for the high-speed rail link, and this would now have to be written off.

Most of this money-£8.6 million-had been funded by borrowing and would now have to be funded from the council’s already stretched revenue budget.

Meanwhile, a report into Bradford Council’s finances said that without “exceptional” Government support, the authority will have to issue a section 114 notice.

Councils legally have to balance their budgets at the end of each financial year, and the report says Bradford Council is unlikely to achieve this.

Autumn Statement did not provide relief

Financial support for local authorities that the council hoped would emerge in the Chancellor’s Autumn Statement last month did not happen – and the statement actually added to Bradford’s financial black hole, the document reveals.

The council has said it will have to implement a “significant savings plan” – likely to include job cuts, raise income, and carry out “a plan for the disposal of Council owned land and assets”.

Eight councils have issued section 114 notices in the past three years.

Last week the LGA said some 17 per cent of council leaders and chief executives expect their authorities to declare themselves effectively bankrupt in 2024/25.

Local authorities in England face a £4 billion funding gap over the next two years just to keep services at a standstill, the organization said, with urgent help needed from the Government to avoid “drastic cuts”.

On Thursday the group Sigoma (Special Interest Group of Metropolitan Authorities), which represents 47 councils in some of England’s most deprived areas, wrote to the Prime Minister.

It said the overall allocation of £64 billion from the Department of Levelling Up, Housing and Communities will add about £4 billion to budgets in 2024/25.

“Whilst we appreciate the difficult national financial position, council finances are on a knife edge,” the letter said.

“We hope there is still the opportunity for the Government to provide local authorities with more assistance, even at this late stage.”

A Department for Levelling Up, Housing and Communities spokesperson said: “Councils are ultimately responsible for the management of their own finances, but we stand ready to talk to any council that is concerned about its financial position.”

Source : Denial Martin, Sub-Political Editor The Telegraph 14 December 2023