Bankrupt cities multiplying: kindergartens closing, toilets becoming paid, transportation costs rising.

Author Alexander Tatiev
Category Columnists, Town
Date February 2 2024
Reading Time 2 min.

Bankrupt cities multiplying: kindergartens closing, toilets becoming paid, transportation costs rising.

Over the past one and a half years, more English local municipalities have declared actual bankruptcy than in the previous three decades. There are many reasons, but the main one is that few urban authorities manage to find a balance between tightening belts and fulfilling basic obligations.

At the core of the problem is a significant reduction in central funding, by 40% from 2010 to 2020! Even with a recent government addition of £600 million, according to the Institute for Government, the main funds available to local authorities remain 10% lower than in 2010-2011. This prolonged harsh austerity has forced municipalities to decide how to spend money and provide services to citizens on their own. As a result, according to financial reports analysis over 13 years, urban expenses have transformed not for the better: spending on culture and transportation has sharply decreased (by 40%).

However, by law, a city council does not have the right to declare bankruptcy. Therefore, in a critical situation, a so-called Notice No. 114 is issued, which notifies of the inability to balance the budget. The consequences of such a decision for citizens automatically include tax increases and significant cuts to “non-essential” services: housing and communal services, cultural and sports programs, and road infrastructure. Data analysis has revealed a harsh reality: compared to 2010, the average English municipality’s expenses have decreased by 10%, and some cities, such as Great Yarmouth and Pendle, have halved their budgets. The recent spike in inflation has pushed the system to the brink of collapse.

Birmingham, the second-largest city in the country, became the most vivid example. A recent Notice No. 114 from Nottingham has also confused people: childcare facilities, playgrounds, and youth centres have closed, public amenities have become paid, and funding for cultural institutions and libraries has been reduced. In areas like Croydon, which has issued Notice No. 114 twice in the last three years, spending on culture and sports has decreased by 85% per capita. It is followed by Herefordshire, Windsor, and Maidenhead.

To ease the tension, the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, announced the allocation of £4.5 billion to finance local authorities. However, upon closer examination, it was revealed that almost half of this amount cities must collect themselves by increasing the council tax to the maximum allowable threshold 4.99%. As part of the government strategy, municipalities are urged to sell buildings and assets owned by the state for up to £23 billion. While officials claim it is a sensible step to boost revenues, critics call it a “fire sale” in a weakened real estate market. The Chartered Institute of Public Finance and Accountancy even warns against such desperate methods to raise money, considering the initiative a “directive to break the rules.”

Analysts are confident that if the trend continues, tax increases and service cuts will become inevitable. And then it is unlikely that the government will be able to shift the blame for the crisis onto local authorities or immigration.