Government “minded to” give Birmingham £1.2bn capitalisation direction
The Government has announced it is "minded to" approve a capitalisation direction of more than £1.2bn for Birmingham City Council, alongside another capitalisation direction of £300m for Woking Borough Council.
In a letter sent today (29 February) to Birmingham's leader, Cllr John Cotton, the Minister for Local Government, Simon Hoare, detailed plans for the exceptional financial support to cover financial years dating back to 2020-21.
Hoare said that the Secretary of State for Levelling Up, Housing and Communities had considered "very carefully" the council's position, including the interest of local people, "and the need to provide sufficient stability to the council and to make sure that service delivery, especially for the most vulnerable citizens, is not disrupted".
The capitalisation direction could be as much as £1,255.1m across. Broken down by each financial year, the amount would be:
- 2020-21, £288.4m
- 2021-22, £109.5m
- 2022-23, £172.2m
- 2024-25, £685.0m
The Local Government Minister said the final amount will only be confirmed when the council's financial accounts for previous years are closed, as the estimates "are based in significant part on assumptions".
Birmingham must also demonstrate it continues to take all necessary steps towards improvement before the capitalisation directions can be approved, the letter noted.
The Government issued a series of responses today detailing its position on capitalisation requests from other financially troubled councils.
Among them was a letter sent to Woking Borough Council that noted the Secretary of State is minded to approve capitalisation directions totalling £330.7m.
The figure would cover the 2023/24 financial year (£235.1m) and the 2024/25 financial year (£95.6m).
Woking, which was reported to be the most indebted local authority relative to size in the UK, issued a section 114 notice in June 2023.
At the time, it had a deficit of £1.2bn and just £16m in core funding available in the 2023/24 financial year, alongside £1.8bn in debt.
The Government has meanwhile issued City of Bradford Metropolitan Borough Council with a best value notice, and said it is minded to provide £220m over two years.
The Government has also published letters relating to exceptional financial support to Thurrock Council, Slough Borough Council, Nottingham Borough Council, and the London Borough of Croydon.
Gove is 'minded to' hand Thurrock £68m, Slough £23m, Nottingham £66m, and Croydon £47m.
In the case of Thurrock, the Secretary of State is also minded to approve revisions to previously approved in-principle capitalisation directions of £40.0 million for 2022-23 (fallen from £452.491 million) and £234.5 million for 2023-24 (increased from £180.17 million).
Overall, the Government has agreed to provide 19 local authorities with support to manage financial pressures for the financial year 2024-25. For 11 councils, this included an agreement to support for prior years.
Responding to the news, Cllr Sir Stephen Houghton, chair of the Special Interest Group of Municipal Authorities (SIGOMA), said: "The number of councils that have applied, and the extent of the support that has been agreed, reveals the extraordinary financial crisis facing local government. After 14 years of cuts and now rapidly rising demand-led pressures, councils are at breaking point.
"This exceptional financial support will be welcome as a stopgap for those councils that have applied, but will not provide a long-term solution, solve the current systemic issues in local government finances or stop councils from having to make severe cuts in services. Instead, the long-term solution to the funding crisis in local government is a fair and sustainable settlement for councils that closes the funding gap and distributes funding on a needs-basis."
Jonathan Carr-West, Chief Executive of thinktank LGIU, said: “It’s good to see the Government finally recognising the scale and severity of the financial crisis in local government that so many of us have been warning of for years. This comes only a day after our research revealed that half the councils in England are seriously concerned about their financial viability in the next five years if nothing changes.
"We know how desperate these councils were to receive this exceptional support. For them, it is a last-minute reprieve that wards off immediate financial collapse. On that basis it is welcome news. But we should not mistake this for generosity on the part of the Government. They are simply allowing councils to borrow and to sell their own assets. We should not mistake today’s announcement for a sustainable long-term solution to local government funding. Increased debt and selling off the family silver will only get us so far.”
Adam Carey
