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To prevent the collapse of council services the government must cancel local authority debt

The financial crisis of local authorities is spiralling out of control as councils struggle to respond to the pandemic. The huge increase in expenditure comes on top of ten years of austerity which has severely weakened local authorities. Austerity is to councils what ‘underlying conditions’ are to people who are vulnerable to the virus. The government has told councils to do ‘whatever it takes’ and they will support them. Yet the funding offered thus far falls well short of spending associated with dealing with the pandemic never mind the big loss of income resulting from the lock-down. The Local Government Association has warned that without “a cast-iron commitment” to cover the coronavirus bill councils will begin to fail. These are just some of the indications of the scale of the crisis.

  • Research by SIGOMA, the Special Interest Group of Municipal Authorities, which includes big councils like Manchester, Leeds, Newcastle, Leicester and Nottingham, estimates that its 44 member councils will be in the red by £2.2 billion by the end of this financial year. Over all councils this could add up to a £5 billion shortfall in just one year.
  • Liverpool Council has been declared to be ‘on the verge of bankruptcy’. It has been given £34 million by the government but it estimates expenses and loss of income of £78 million.
  • Liverpool Metro Mayor Steve Rotherham estimates that the city region expects the crisis to cost a combined total of £239 million in lost income and extra expenses over a period of six months. But so far the government has allocated them just £102.4 million in extra funding – only enough to cover the impact of the crisis for less than three months.
  • Six Oxfordshire Councils have written to the government warning that some of them will be “financially unstable” as a result of the fallout from the pandemic. They predict that some of them could be unable to set a legal budget in 2021/22.
  • Tory council Windsor & Maidenhead has warned the government that it is unlikely to be able to avoid issuing a Section 114 notice.
  • The local government Chronicle reported that five councils (Birmingham, Sunderland, Warwickshire, Solihull and Middlesbrough) have used the Coronavirus legislation to suspend their legal duty to provide social care. This means the councils do not have to carry out financial assessments, can charge people retrospectively for the care they receive and undertake a later financial assessment. Councils also do not need to prepare or review care and support plans.

This is what the CEO of CIPFA meant when he spoke of “a financial tsunami of reduced income and increased costs”.

An unprecedented emergency requires emergency measures. One such measure would be the cancellation of local authority debt held by the Public Works Loans Board, currently around £82 billion. This would provide councils with around £4.5 billion extra spending power a year (the cost of servicing the debt last year). In itself it would not resolve the funding issues resulting from austerity. There needs to be a return to funding of councils based on an annual assessment of social needs in each locality (abandoned by the coalition government in 2013). However, debt cancellation would be a simple step which would provide significant funding on an annual basis and would help to stabilise council finances. The government itself has set a precedent by cancelling £13.4 billion NHS debt.

An unprecedented crisis requires emergency measures. To stave off a collapse of council services the debt held by the Public Works Loans Board should be cancelled. This would give local authorities around £4.5 billion extra income a year.

We are calling on councils to press the government to cancel this debt.


1) Sign our statement in a personal capacity.

2) If you are a councillor propose your group and council support it.

3) Propose they write to the Local Government Association calling on it to press the government to cancel the debt.

4) Call on your MP to sign the statement and call on the government to cancel the debt.

5) If you are a local government worker get your union branch to support the statement and write to the national union to press them to support the statement and pressure the government.

To sign the statement email labourcouncilhousingcampaign@gmail.com

Download and circulate our Statement


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