Councils Could be Pushed into Bankruptcy by Inflation!


English city councils have warned that unless the government provides emergency funds, a multibillion-pound financial crisis brought on by increasing inflation may render local services unprofitable and perhaps force local authorities to go bankrupt.

Local services that were safe only three months ago, according to the cross-party Local Government Association (LGA), are now in danger of being reduced or eliminated as councils battle to control an unanticipated £2.4bn increase in energy and pay expenses.

During a time when demand for services was increasing, particularly in areas like adult and children’s social care and homelessness, James Jamieson, the chair of the LGA for the Tories, claimed that the impact on services would be “disastrous” and hinder councils’ efforts to support people through the cost-of-living crisis.

“Soaring inflation, energy prices and ‘national living wage’ pressures are putting council services at risk. Budgets are having to be reset, with potential cuts to the essential services people rely on, in the middle of a cost-of-living crisis,” Jamieson said.

Without adequate long-term funding, the LGA predicts that English councils will face a £2.4 billion collective increase in inflationary costs this year, rising to £3 billion in 2023–2024, and £3.6 billion in 2024–25. This would constitute a revisiting of the spending review settlement reached last autumn.

These pressures, it is said, represent a “serious risk to the future financial viability of some services and councils” since they follow more than a decade of budget cutbacks made as a result of austerity measures for local authorities.

Jamieson added: “Inflation is not going to come down overnight. As our analysis shows, the impact on our local services could be disastrous. This will stifle our economic recovery and undermine government ambitions to level up the country.”

Inflation-related shortfalls for councils this year are anticipated to total an unexpected £1.7 billion, according to information published by The Guardian earlier this month. The LGA has updated this to consider projections from England’s 181 district councils as well as further research on how raising the national living wage would affect employment.

Councils normally consider average salary and inflation costs of roughly 3% when setting their budgets.

As a result of the law’s requirement that councils balance their accounts each fiscal year, any financial shortages cannot be ignored. This might result in the loss of jobs and the postponement or cancellation of construction initiatives like new schools or regeneration plans. Reduced access to services like libraries, leisure centres, and road maintenance might be the result.

This could push some councils over the edge, or they will have to make radical cuts. That’s difficult because they are already cut to the bone. Cuts mean staff, and staff cuts equal diminishing and underfunded frontline services.

According to a government spokesperson, “We provided councils with an additional £3.7 billion this year to enable them to continue providing key services, and we are collaborating with the sector to understand the impact of emerging challenges.”

The LGA, which is holding its annual conference this week in Harrogate, said that inflation had already consumed this year’s increase and that councils will be much more vulnerable going forward since the majority of the three-year budget review increase would fall in 2022–2023. It predicted a net financing imbalance of £1.4 billion this year, £3.4 billion the next year, and £4.5 billion in 2024–25.

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