Could a council go bust and if it does what should we do?
My managers manager is a fairly senior guy in my local authority. Two months ago he was asked to take 40% out of his budget over the next three years.
In an unguarded moment a few weeks ago he commented that if it transpired that this target was more firm target than aspiration we ‘might as well all pack up and go home.’
This, along with a whole number of other things going on in local government, got me thinking; is it possible that a whole local authority might get in a position where they are so low on resources that they ‘might as well all pack up and go home.’
There are certain things that a council legally has to do and there are functions that have to happen to enable these things to take place. If it becomes impossible to meet these statutory responsibilities within the finances that the council has then in effect it would be bust. I don’t want to be inflammatory but is this possible?
I asked this question on twitter and in response the excellent Alex Khaldi from Impower wrote a blog post entitled: Pop Goes the council? I urge you to check it out as my below summary will doubtless not do it justice.
His argument is that any bankruptcy of a local authority would not just be because of the Government finance settlement. As he says, any failure:
Could include, but not be limited to; financial insolvency (multiple causes), political breakdown, a major trades dispute, a profound legal/regulatory issue, extreme service failure or indeed other forms of shock (such as a natural disaster) which render the organisation and local service system unable to perform to a scope and level approaching reasonable expectations. Where public bodies fail in a profound sense, financial solvency will likely be at the heart of the matter, but one or more of the other factors I have mentioned will almost certainly form part of the picture – either as a cause or effect of the root financial problem.
Worryingly he confirms a few of my fears:
Turning to the current position, I am led to believe there are a number of small district councils that are in serious financial distress. A combination of factors is at work here but at root their spending power does not match their basic liabilities.
I don’t have any specific examples to back this point up but knowing how difficult it has been to find the necessary savings in some larger councils it does not surprise me at all. Alex then turns to solutions and argues that the previous methods of bail outs involving central Government intervention and inspection probably wouldn’t be the right way forward. Instead he suggests that:
I am excited by the possibility that a Council rescue could involve, at its heart, local people, businesses and other organisations taking on the challenge of rebuilding their council from the bottom up.
We agree, but perhaps because we are bureaucrats we are also a little scared by the prospect. Does our local population have the skills to help with this sort of bailout? Would there be enough sympathy for the situation in the local community for them to want to support a bail out or would the reaction be one of calling for the Government to step in? Do we, as a populace, have the patience to rebuild a local council from the bottom up?
These are questions that need to be answered and whilst we don’t want to be alarmist it is also a situation that someone needs to plan for now.
In order to continue the debate started by Alex we’ve come up with two key principles for any local government rescue.
1) Consistency of service
How can we ensure that valuable public services are not stopped or interrupted because of a council failure? What would need to be done in the short-term? Can other local authorities step into the breach? Could the Government provide short term bridging capital? Would other models be necessary?
2) Legitimacy of the decisions made about future services
How can we ensure that decisions are legitimate? Would we need to elect a new council if the current one had failed? How would local people get involved in making these decisions? How could a local population that wanted council run services be heard when those same services had failed? Who would make the final decisions?
We’re not experts on these issues by any means but local government officers are not simply going to ‘pack up and go home’ so it is important that we start considering these issues now. We hope others will join in the debate.