Newcastle’s council leader has accused the Government of a “disregard” for cash-strapped local authorities after a minister called on struggling town halls to run down their reserves to stave off the threat of bankruptcy.
Pressure is mounting over the dire financial state of councils across the country, as they struggle to cope with the impact of inflation and escalating demand for services.
The likes of Birmingham and Nottingham already have been forced to declare section 114 notices, blocking all new spending aside from on statutory services, while Middlesbrough has this week become the latest to warn that it will have to do so unless the Government provides emergency support within weeks.
Local government minister Simon Hoare has now sparked anger among council leaders after telling them to spend the reserves they hold to avoid falling into financial ruin.
Newcastle City Council leader Nick Kemp told the Local Democracy Reporting Service that the Government should “level the playing field instead of putting the blame on the doorstep of local authorities.”
Civic centre chiefs in Newcastle predict that they will need to slash £60m from their budgets over the next three years, including controversial measures to slash the number of beds available for the city’s homeless and curtailing other crisis support services, having already cut £369m since 2010.
The council will have an estimated £160m worth of reserve funding in its coffers by March 31 this year – but only £17.1m of that is unallocated and therefore available for use as a day-to-day contingency, with the remaining £142.9m already earmarked for specific purposes.
Coun Kemp, who has been the council’s Labour leader since 2022, said: “The suggestion from the Government that local authorities should tap into reserves to cover day-to-day services once again highlights the disregard they have shown to councils up and down the country. We have faced 14 years of Government cuts and local authorities in England face a funding gap of £4bn over the next two years.
“Inflationary pressures have led to increasing costs but demand on the crucial services we provide is continuing to increase. Council leaders of all political colours have called for a long-term plan to sufficiently fund local services through multi-year settlements.
“The current approach to local government funding is not fair or sustainable, and the expectation that we raise council tax to plug the gaps left by the Government means hard-working families are the ones being punished. Our reserves are there to reduce risk due to unexpected and unavoidable cost pressures.
“Their purpose is not to plug the gaps in financial settlements that disproportionately impact those authorities in some of the most deprived areas of the country, such as Newcastle.
“We face having to save nearly £60 million in our city over the next three years and will continue to work hard to deliver for our communities. I would call on the Government to level the playing field instead of putting the blame on the doorstep of local authorities.”
Mr Hoare was reported by Bloomberg as telling the Local Government Association this week that “reserves are not there to be guarded like they are the sort of flame of the vestal virgins, never to be touched”.
He added: “They are there to be used. I would encourage you to do so.”
A Middlesbrough Council report that issued a stark warning about its finances this week pinpointed an “overreliance” on the use of reserves to cover overspends as one of the factors behind its “critical” budget position.
