Experts are predicting that more councils will declare ‘bankruptcy’ after the government rejected calls for extra social care funding for authorities in 2024-25.
Think tank the Institute for Government (IfG) made the claim after the provisional local government finance settlement included no extra resource for authorities beyond that already committed, despite leaders’ calls for extra cash.
About council ‘bankruptcy’ notices
Five authorities with social services responsibilities – Birmingham, Croydon, Nottingham, Slough and Thurrock – have issued a section 114 notice in the past three years, meaning they were unable to meet their legal requirement to set a balanced budget.
Section 114 notices tend to be followed by government intervention to direct the relevant authority to address financial problems and large cuts to non-discretionary spending. Authorities must continue to meet their statutory duties, meaning social care spending is largely protected.
Real-terms funding rise
Ministers said the proposed settlement meant authorities would have a potential resource of over £64bn in 2024-25.
This is up by almost £4bn on 2023-24, a rise of 6.5% in cash terms, which the independent Institute for Fiscal Studies (IFS) said amounted to a 4.7% rise in real terms.
However, the Local Government Association warned that the increase was reliant on authorities raising council tax by the maximum rate permitted without the need to call a local referendum (3%) and boosting the adult social care precept.
10% hike in national living wage
Also, sector leaders and expert bodies said the settlement also discounted the impact of high rates of inflation on council coffers over the past year and future cost rises, notably the 9.8% hike in the national living wage this April.
The rise, from £10.42 to £11.44, will cost county authorities £6.3m each in 2024-25, found a County Councils Network (CCN) survey carried out in November 2023.
This is driven by the need for councils to fund providers to increase wages for most of their care workers.
As of March 2023, about 140,000 care workers in the independent sector in England (17% of the total) earned the then NLW of £9.50, according to Skills for Care’s latest report on the workforce.
A further 400,000 care workers in England (47% of the total) earned between £9.50 and £10.41 as of March 2023, meaning they would have received a pay rise when the NLW rose to £10.42 in April of last year.
Warning of ‘painful cuts’
Prior to the proposed settlement’s publication, 30 council leaders wrote to levelling up secretary Michael Gove, saying the forthcoming NLW rise had “added hundreds of millions of additional, unplanned, costs to our budgets”.
They warned that without additional funding in the settlement, councils would have to enact “painful reductions to frontline services”.
But their calls fell on deaf ears, leaving funding levels for 2024-25, broadly, as the government had set out in its 2022 autumn statement.
Council costs ‘rising faster than inflation’
However, inflation since then has been higher than was forecast at the time, said the IfG, while the IFS said some of councils’ costs had gone up more quickly than general inflation.
For example, children’s services spending was 16% higher in April to September 2023 compared with the same period in 2022, the IFS added.
The LGA said it had calculated that councils were £2.4bn short of the funding they needed this year to maintain services at 2022-23 levels, and this gap would increase by a further £1.6bn next year.
‘Unthinkable’ government failure to boost funding
“It is therefore unthinkable that government has not provided desperately needed new funding for local services in 2024-25,” said LGA chair Shaun Davies.
“Although councils are working hard to reduce costs where possible, this means the local services our communities rely on every day are now exposed to further cuts.”
“With no additional funding announced, our councils will have no choice but to implement more severe reductions to services and to levy higher council tax rises,” added the CCN’s finance spokesperson, Barry Lewis.
Prediction of more council ‘bankruptcies’
The IfG said that the proposed settlement meant it was likely that more councils would have to issue section 114 ‘bankruptcy’ notices.
It claimed that the latest to issue a notice – Nottingham – had fallen victim to insufficient funding, rising demand and increased costs, pressures that were “far from unique”.
Charities for older and disabled people and carers, under the auspices of their umbrella body, the Care and Support Alliance (CSA), were also highly critical of the proposed settlement.
The CSA referenced Association of Directors of Adult Social Services figures that 250,000 people were waiting for assessments, 200,000 for reviews and 20,000 for care or direct payments, as of August last year.
‘More disabled and older people will struggle’
CSA co-chair Caroline Abrahams said these figures would now get worse, adding: “Behind every one of them there are individual stories of our fellow citizens struggling and often failing to live a good and decent life, since without the care they need older people are unable to do the basics like prepare meals and take their medication, or, in the case of many disabled people, work, train and enjoy the company of friends.”
From a provider perspective, the Voluntary Organisations Disability Group said the proposed settlement “falls far short of what is needed to put social care on a surer footing”.
“The previously announced increases in national living wage are welcome but currently unfunded and coupled with much higher operating costs brought on by inflationary and other pressures,” said VODG’s chief executive, Rhidian Hughes.
Settlement ‘good news’ for councils – minister
However, local government minister Simon Hoare said the above-inflation settlement was “good news” for councils.
“We are, and will, continue to work alongside councils to ensure quality and reliable services are provided to those who need and use them, while also keeping a weather eye on ensuring value for the taxpayer,” he added.