Last week the Government offered “Exceptional Financial Support” (EFS) to a record 30 English local authorities, enabling them to borrow money to avoid bankruptcy.
These English councils may be the most indebted, but they are only the tip of the iceberg of the local government debt crisis.
Since 2010 council funding from central government has been cut by more than 50 per cent in real terms – this is now being exacerbated by rising demands from homelessness, demand for social care and children’s services. While there has been incompetence and mismanagement at some councils – as there has been in central government too – that is not the real story: demand for services has outstripped the resources allocated.
To its credit, Labour has increased council funding by 6.8 per cent for 2025-26, but this is not sufficient to absolve councils of the struggle with past debts and contemporary demands. Moreover the EFS actually has the capability to make things worse for councils – and those of us who live in their boundaries.
It is neither exceptional nor support. It is a debt, and something that the Conservative government also provided last year to Birmingham and to 18 other councils. The Government’s solution (both the current one and its predecessor) to the unprecedented debt crisis in England’s councils is to make loans to councils in debt.
What are obscurely described by Government ministers as “capitalisation directions” under the EFS process are in fact loans made on the condition that councils must sell assets and/or cut services to the public to repay the loans.
As a one-off measure this could be viable, but many councils – like Birmingham and my own, Croydon – are already in multiple years of this process and the finances are not improving. This year Croydon will receive an effective loan of £136m through the EFS process, up from £51m last year.
Croydon is currently around £1.4bn in debt, has closed four libraries this year and is proposing to cut youth services and close a carers’ centre.
Birmingham Council, which receives £180m through EFS this year, has been selling off children’s centres, day nurseries, council homes, industrial land and council offices in a desperate attempt to balance its books.
Selling off resources now will reduce service capacity in the future. With the Government keen to expand childcare provision, it should not be sitting idly by.
This is the very definition of the “sticking plaster politics” about which Keir Starmer railed against while in opposition. But in Government he is kicking the can down the road, just like the Tories did.
Last year 19 councils were offered EFS, but this year it is 30. Nearly all of the 19 are back in this year’s list of 30 – many, like Croydon, taking more “support” than they did the year before.
Councils can only sell off assets to fund services for so long. It’s like a tenant selling their possessions to pay the rent. At some point soon, the councils will run out of assets to sell and the government will run out of road.
For local residents it’s heads you lose, tails you lose. As The i Paper has reported, nearly every council in England is increasing council tax by the maximum allowable 5 per cent this April (above inflation), and several (including Birmingham) have been allowed to make increases of above 5 per cent, up to 10 per cent.
But even though residents are paying more, they cannot expect better services. Councils across England are making swingeing cuts to services, closing libraries and leisure centres, and raising other fees as a result of the debt crisis.
For residents, you pay more to get less – and that’s not a good deal. In many areas of the country, it doesn’t matter who you vote for in local elections, you will get higher taxes and worse services.
Ultimately what needs to happen is a substantial write-off of at least a large chunk of councils’ unsustainable debts. The Conservatives kicked the can down the road, Labour was elected to end “sticking plaster” politics.
In the absence of that write off, councillors need to make a collective stand: stop cutting services, stop selling assets, and refuse to govern. Then the Government would have to confront the crisis itself.
Andrew Fisher is a former executive director of policy for the Labour Party
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