Government’s Financial Support: A Band-Aid Solution for Local Authorities
Last week, the government announced “Exceptional Financial Support” (EFS) to a staggering 30 English local authorities, allowing them to borrow funds to prevent bankruptcy. While these councils represent the most indebted segment, they are merely the surface of a much larger local government debt crisis.
Since 2010, funding from central government to councils has been slashed by over 50 percent in real terms. This reduction has been compounded by escalating demands for services related to homelessness, social care, and children’s services. Although some councils have faced criticism for incompetence and mismanagement—issues that have also plagued central government—the core problem remains: the demand for essential services has far exceeded the allocated resources.
In a move that deserves acknowledgment, Labour has increased council funding by 6.8 percent for the fiscal year 2025-26. However, this increase does little to alleviate the burden of past debts and the mounting contemporary demands. Moreover, the EFS is unlikely to provide true support; instead, it functions as a loan that councils must repay. This approach mirrors the Conservative government’s actions from the previous year, which provided similar loans to Birmingham and 18 other councils.
The government’s strategy to address the unprecedented debt crisis facing English councils involves extending loans, under the somewhat obscure terminology of “capitalisation directions,” through the EFS process. However, these loans come with stipulations that councils must sell off assets and/or implement service cuts to repay them.
While this approach could be feasible as a one-off measure, many councils—such as Birmingham and my own, Croydon—are now trapped in a cycle of repeated borrowing without any signs of financial recovery. This year, Croydon is set to receive an effective loan of £136 million through the EFS process, a significant increase from the £51 million it received last year. Currently, Croydon is grappling with approximately £1.4 billion in debt, having closed four libraries this year and proposing further cuts to youth services and the closure of a vital carers’ center.
Birmingham Council, meanwhile, is set to receive £180 million through the EFS this year, yet it has resorted to selling off children’s centers, day nurseries, council homes, and other vital assets in a desperate attempt to stabilize its finances. This strategy of selling off resources now will undeniably diminish service capacity in the future. Given the government’s ambition to expand childcare provision, it should not be passively observing this crisis unfold.
This situation epitomizes the “sticking plaster politics” that Keir Starmer criticized while in opposition. However, now in government, he appears to be prolonging this cycle, echoing the same tactics employed by the Conservatives.
Continued Challenges for Local Councils
Last year, 19 councils were offered EFS, but this year that number has escalated to 30. Nearly all of the previous 19 are again on the list of 30, with many, like Croydon, seeking more “support” than they did the year prior. Councils can only liquidate assets to fund services for a limited time; it is akin to a tenant selling their belongings to cover rent. Eventually, councils will exhaust their assets, and the government will reach a breaking point.
For residents, the situation feels like a lose-lose scenario. As reported by The i Paper, almost every council in England is poised to increase council tax by the maximum allowable 5 percent this April, surpassing inflation rates. Several councils, including Birmingham, have even been granted permission to raise taxes above 5 percent, reaching up to 10 percent.
Despite these tax hikes, residents cannot expect improvements in services. Councils across the country are making drastic cuts, closing libraries and leisure centers, and raising additional fees due to the ongoing debt crisis. For residents, the message is clear: you’re paying more for less—and that’s simply not a fair exchange. In many regions, it seems irrelevant who one votes for in local elections; the outcome remains higher taxes and diminished services.
Ultimately, what is needed is a significant write-off of at least a substantial portion of councils’ unsustainable debts. The Conservatives have deferred this pressing issue, while Labour was elected on the premise of ending “sticking plaster” politics. In the absence of such a write-off, councillors must collectively take a stand: cease service cuts, halt asset sales, and refuse to govern under these conditions. Only then will the government be compelled to confront the crisis head-on.
Andrew Fisher is a former executive director of policy for the Labour Party
