A third of municipalities in poor areas are on the verge of bankruptcy and threaten their services

A survey of 47 local authorities found that 14 feared they could not balance their books and were considering freezing all non-essential spending .

Municipalities are no longer able to cover the deficits in their budget after having exhausted their cash reserves (

Image: Maureen McLean/REX/Shutterstock)

Nearly a third of municipal councils in poor areas are considering bankruptcy because they are short of money. A survey of 47 local authorities revealed that five of them are currently deciding whether to declare that they will not be able to balance their accounts this year.

Councils are considering issuing what is known as a Section 114 notice, which would freeze all non-essential spending. Nine other local authorities have said they may have to declare bankruptcy next year.

The Municipal Authorities Special Interest Group, which conducted the survey, said many localities had exhausted their cash reserves and were therefore no longer able to fill gaps in their budgets. Councils said the most common cause of financial pressures was demand for child welfare services, following government demands to treat these services as an equal priority to adult welfare and to allocate additional funds.

Other important factors were inflation costs and wage increases, with warnings that an impending increase in the cost of borrowing could add even more financial pressure. Warnings have been repeated about the perilous state of local authority budgets, with the Institute for Fiscal Studies reporting that councils serving disadvantaged communities are receiving less investment - largely due to delays in planned reforms on how funds are allocated. Councils have started declaring bankruptcy at an unprecedented rate, with Section 114 notices issued by Tory-led councils in Thurrock and Woking and Labor in Croydon and Slough.

Sir Stephen Houghton, Labor Leader of Barnsley Council and Chairman of Sigoma, said: “The Government must recognize the significant inflationary pressures that local authorities have had to deal with over the past 12 months. Along with inflationary pressures, municipalities are facing an increasing demand for services, especially in the care sector.

“Wage increases are putting considerable pressure on budgets, and therefore the government must ensure that local authorities have the additional funds they need to fully fund these salary increases, otherwise they risk having impact on future service delivery. The financing system is completely broken. Councils have worked miracles for 13 years, but there is nothing left." Sir Stephen also called on the government to clarify the timetable for local government funding reforms.

A government spokesperson said: “Councils are ultimately responsible for managing their own finances. However, the government has made it clear that local authorities should not take undue risks with taxpayers' money, and we have established the Office of Local Government. to improve accountability for performance across the sector. We recognize that all councils face pressures and, in addition to making halving inflation a priority, we have introduced a one-time funding guarantee to ensure that every council sees at least a 3% increase in power of basic purchase before any local decision on council tax rates.

"We are also providing around £2billion in additional social care grants. We also recognize the...