Struggling councils swamped by an economic crisis this winter could go bankrupt, a North East Labour chief fears.
Gateshead Council leader Martin Gannon has warned that local authorities are facing an “impossible” situation, with inflation creating major budget deficits totalling tens of millions of pounds.
He told a North East Combined Authority meeting that officials in Gateshead were now predicting that the council will have a shortfall of between £55m and £60m in 2023/24 due to escalating costs, rising sharply from an estimated £45m just six weeks ago.
Councils across the region have issued stark warnings in recent weeks about the impact of rising energy bills and inflated contract prices, pleading with the government to offer emergency financial support to avert deep cuts to local services.
Cllr Gannon said: “We find ourselves in the middle of an incredibly difficult financial situation as local authorities and the plight that is facing our residents and our ability to be able to respond to that.
“County Durham, South Tyneside, Gateshead, Sunderland… all of our areas have considerable deprivation, with families really struggling at the present time. Our ability to support them is really challenged.”
He added: “The other issue that really concerns us is the impact of the current government turmoil. The impact this will have on our budgets going forward, with rising interest rates and inflation, will be enormous.”
Cllr Gannon told Tuesday’s meeting at Sunderland City Hall that austerity policies under previous government’s had led to Gateshead Council’s budget being slashed by £179m since 2010 – but that the Truss administration’s plans could make that look “small fry”.
The Deckham councillor warned that being forced to make swingeing cuts to council services would be an “impossible” ask for local authorities, saying: “I genuinely don’t know how local authorities in the North East of England are going to balance their books over the next two or three years”
He added: “The authorities in the North East are well run, we are effective and efficient. We are not the ones on the edge, despite the fact that we are areas with extreme deprivation. The Local Government Association has a list of 100 authorities they are supporting and there is not one of us on that list. There will be a lot on that list across the county that will go bankrupt.”
There were warnings last week that the economic turmoil unleashed since the Government’s mini-budget could pose a “massive risk” to council services in Newcastle, where council finance officials expect a budget deficit of more than £22m next year.
Northumberland County Council had offered all of its staff the chance to apply for voluntary redundancy, with the authority currently predicting that it will overspend its budget for this year by £12m. Durham County Council has warned it will need to dip into its cash reserves to help cover an overspend of £19.2m, while North Tyneside Council faces an in-year deficit of almost £11m.