Councils enforcing rental licensing are on brink of bankruptcy

Scores of councils that enforce licensing regimes on the private rental sector claim they are on the verge of bankruptcy.

Almost one in five council leaders and chief executives in England surveyed by the Local Government Association think it is very or fairly likely that their chief finance officer will need to issue a Section 114 notice this year or next due to a lack of funding to keep key services running.

Authorities issue a section 114 notice when they forecast that their expenditure will exceed their income for a particular financial year – which is illegal. Once such a notice is issued, the council may not incur new spending unless its most senior finance officer permits it to do so. After that, the council leaders must meet within 21 days to discuss how to bring their expenditure in line with funding - in other words, make cuts.

The LGA estimates that councils in England face a £4 billion funding gap over the next two years just to keep services standing still but last month’s Autumn Statement failed to provide the additional funding needed to protect services from further cuts. 

In 2024/25, councils will be able to increase general council tax by three per cent without the need for a referendum. Those with social care responsibilities will again be able to increase the adult social care precept by up to a further two per cent.

The LGA survey – of council leaders and chief executives - also reveals that half of them are not confident they will have enough funding to fulfil their legal duties next year (2024/25), including the delivery of statutory services.

Several councils have issued section 114 notices in recent months for a range of reasons, but the association says all those that have had to curb spending in this way have faced the same underlying pressures - councils’ core spending power falling by 27 per cent in real terms from 2010/11 to 2023/24, the impact of the pandemic, rising demand for services, in particular statutory services like social care and homelessness support, and the extra costs to provide them.

The LGA insists that the government urgently needs to use the forthcoming provisional Local Government Finance Settlement to provide councils with sufficient resources to set balanced budgets next year without having to make drastic cuts to services.

LGA chair Shaun Davies says: “The lack of funding for local services in the Autumn Statement has left councils facing a growing financial crisis. No council is immune to the risk of running into financial difficulty. As our worrying survey shows, many now face the prospect of being unable to meet their legal duty to set a balanced budget and having Section 114 reports issued.

“Local government is the fabric of our country, with councils providing hundreds of services that our communities rely on every single day. For many people, these services are a lifeline. If councils cannot thrive then our communities cannot thrive. If social care services that councils provide cannot cope with demand, then pressure on the NHS will grow further. If council housing teams can’t succeed, then all of our hopes for new homes will not succeed.

“While councils have worked hard to reduce costs, find efficiencies and transform services, the easy savings have long since gone. The Government urgently needs to act to address the acute financial challenges faced by councils.”