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Sir Keir Starmer would need to inject large amounts of money into local authorities in England to prevent a string of councils from going bust should he win the next election, according to the Labour chair of the House of Commons levelling-up select committee.
The Labour leader has said he would provide longer-term financial settlements for councils to allow them to plan better. But he has yet to pledge any new funding to rescue those teetering on the brink of insolvency and warned on Thursday that “we can’t turn the taps on” for local government.
A combination of rising costs, growing demand for services such as adult and child social care and long-term declines in central government grants have left councils across England struggling to stay afloat in recent years.
Clive Betts, Labour MP for Sheffield South East, who chairs the levelling-up, housing and communities committee, said local government finances were in a “complete mess” after years of underfunding.
“We’ll have to put money in straight away after the election, otherwise councils will go bankrupt,” Betts told the Financial Times. “The LGA has said 20 per cent of councils are facing potential bankruptcy,” he added, referring to a warning late last year by the Local Government Association, the umbrella organisation representing English councils.
The Conservative government in January pledged £600mn of extra funding for local authorities in England, most of it to meet the rising cost of social care.
It has also granted some of the most cash-strapped councils exceptional permission to raise council taxes above normally permitted amounts and allowed them to use capital resources to meet revenue costs. But the overall picture remains bleak.
Starmer said on Thursday that a Labour government would move from one-year to three-year financial settlements for councils to allow them to spend money more effectively. “But I can’t pretend that we can turn the taps on, pretend the damage hasn’t been done,” he said at the launch of the party’s local election campaign. “The way out of that is to grow our economy.”
Labour has made fiscal probity one of its key messages ahead of the general election later this year, with only a handful of new tax and spend commitments.
“Labour has said it will do things like fair funding and having long term funding commitments but won’t do more,” Betts said. “It helps but it doesn’t solve it.”
He added that more than 40 councils were facing de facto bankruptcy. “A Labour government can’t just sit there and watch one council after another fall down,” he said.
The LGA estimates total funding shortfalls over the next two years at £4bn. Many local authorities are already cutting essential services to fulfil a legal requirement to balance their budgets.
Tony Travers, professor of public policy at the London School of Economics, said it would be politically “impossible for Labour not to put in more money.”
He added: “Councils have dealt with huge cuts and because they’ve protected social care there have been even deeper cuts to other things that people see on the street,” such as potholes, graffiti and litter. “Labour would surely want to do something about that.”
Angela Rayner, shadow levelling-up secretary, blamed the “austerity” drive by the government since 2010 for councils’ funding shortfalls. But she told the Financial Times that if Labour won power, it would have to stick to its fiscal rules and would not be able to provide extra money.
“But we’ve said that giving councils a longer-term funding settlement at least makes them able to plan ahead. And that makes it a lot easier for councils and mayors when they are trying to bring about schemes and projects,” she said, adding: “We are not going to be able to fix everything overnight.
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