English Councils are Predicted to Fall and Owe Billions

Posted on Sep 22, 2023 at 12:09 AM

Moody's Investor Services' study indicates that 20 of England's most prominent local authorities are nearing pre-insolvency warnings due to high debt loads following the financial collapse at Birmingham City Council.

The country recently issued a section 114 notice, stating it lacks the necessary resources to balance its budget, indicating a significant burden of eye-watering debt obligations.

It came after recent failures similar to this one at cash-strapped councils like Woking, Croydon, Thurrock, and Slough.

Conservative or liberal democratic governments typically manage seven listed places in Hampshire and Cheshire, while Eastleigh and Warrington have debts exceeding £1.8 billion.

Spelthorne Borough Council in Surrey has the highest debt levels among the top 20 English councils, at £1.1 billion.

Moody's issued a warning following Rishi Sunak's attempt to exploit Labour-run Birmingham's financial difficulties, stating, “They've bankrupted Birmingham; we can't let them bankrupt Britain.”

Factors contributing to the issue include inflation, increased adult social service demand, and significant reductions in company tax revenue.

The city's bankruptcy is primarily due to the City Council's inability to cover $955 million in equal pay claims for previously underpaid female government workers. The council paid 1.1 billion pounds to female employees in June but still owes 650-750 million pounds, causing an 87-million-pound deficit for 2023-2024.

Additionally, the council faces financial challenges due to years of budget cuts and the estimated cost of a new Oracle cloud-based IT system.

Birmingham, central England's largest city, hosted the Commonwealth Games in 2018 and will host in 2026, but a former consultant revealed the Games contributed to the city's bankruptcy.

Furthermore, Birmingham's bankruptcy raises concerns about increased violence and taxation, with First Class Foundation mentor Nathan Dennis predicting a return to 2010 austerity measures and potential increased crime.

The council is dedicated to providing essential services like education and social care. Still, it has stopped spending on non-essential items and has yet to make plans to support further initiatives.

Surrey Council reports that local governments are acquiring commercial properties with loans to fund service maintenance.

The Covid pandemic has led to a decline in commercial property prices, increased remote work, and decreased need for physical storefronts.

Moody's revealed that councils have invested in hazardous commercial property deals to offset a 17.5% reduction in central government funding between 2010 and 2020. Town halls became jealous of the cashflow-enhancing action and copied the strategy.

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