The seven local authorities across Tyne and Wear, Northumberland and Durham owe lenders roughly £2,000 per person in the region, according to BBC analysis of data from the Department for Levelling Up, Housing and Communities (DLUHC).
South Tyneside has the tenth highest level of debt per resident in the UK, with a total of £633.5 million amounting to £4,283 per head.
Gateshead ranked 15th in the country, while Newcastle has the overall highest level of debt among the North East councils – owing more than £687 million.
There have been widespread warnings about a cash crisis in local government, as cash-strapped town halls struggle to keep up with escalating demand for social care services following years of Government funding cuts.
The likes of Birmingham and Nottingham have already been forced to issue section 114 notices, effectively declaring bankruptcy, and there are fears that many more are on the brink of financial disaster.
Local authorities across the UK, as well as police and crime commissioners and combined authorities, have a combined debt pile of £122 billion.
Dame Meg Hillier, chair of the Public Accounts Committee and MP for Hackney South and Shoreditch, said the “staggering” numbers posed an “extreme and long-lasting” risk to frontline services.
These are the debt figures for the seven North East councils, as of September 2023:
- South Tyneside – £4,283 debt per resident (£633.5m total debt)
- Gateshead – £3,492 (£685m)
- Newcastle – £2,304 (£687.3m)
- Northumberland – £2,091 (£672.4m)
- North Tyneside – £1,924 (£402.4m)
- Sunderland – £1,894 (£519.2m)
- Durham – £812 (£423.2m)
For the past decade, councils have been encouraged to make commercial investments to provide an alternative source of income aside from the usual mix of grants, council tax, rates fees and charges.
Town halls across the country have bought hundreds of commercial assets from shopping centres to office parks, cinemas, energy companies and housing developments.
But council leaders, who have seen Government grant funding reduce by 40% in real terms since 2010, have had to borrow increasing amounts to pay for those investments. This has mainly been through an arm of the Treasury known as the Public Works Loan Board.
Coun Joanne Bell, South Tyneside Council’s lead member for finance, said that her authority had borrowed to fund major projects such as building new leisure facilities and The Word in South Shields and “that investment is paying dividends”.
She added: “We borrowed in the past when interest rates were low, to provide the facilities that people rely on now. With interest rates much higher now we are purposely borrowing less and instead relying more on external funding to pay for capital schemes. South Tyneside has been incredibly successful in showing the potential for growth in the borough having secured millions from round three of the levelling up fund, the town’s fund and being designated a levelling up partnership area.”
Jonathan Carr-West, chief executive of the Local Government Information Unit, called for urgent reforms to prevent more councils from going bankrupt – including a promise of multi-year funding settlements from the Government, and potentially giving local authorities increased fiscal freedoms to spend and raise money.
He said: “People often focus on council debt because it’s quite eye-catching. But actually, what we need to be looking at is the bigger picture of how we fund or don’t fund local government and local public services.
“That system is close to breaking point. We survey every council in the country every year and only 14 per cent of council leaders have any confidence at all in the sustainability of the local government finance system. We’ve seen council after council going bust.”
A DLUHC spokesperson said: “Councils are ultimately responsible for their own finances, but we are very clear they should not put taxpayers’ money at risk by taking on excessive debt.
“The Levelling Up and Regeneration Act provides new powers for central government to step in when councils take excessive risk with borrowing and investment. We have also established the Office for Local Government to further improve accountability across the sector, which will help detect emerging risks and support councils to continue delivering key public services.”
