More councils will fail, warns Moody’s

More English councils will fail under the weight of billions of pounds of debt, Moody’s has warned. In a report published in the wake of Birmingham City Council’s declaration of “effective bankruptcy”, the rating agency said several other local authorities across the country are close to issuing pre-insolvency warnings. The top 10 most indebted councils relative to income 1. Spelthorne £1.1bn (86.9x annual income)2. Woking £2bn (62x annual income)3. Eastleigh £522m (41.1x annual income)4. Runnymede £643m (23.4x annual income)5. Worthing £204m (14.4x annual income)6. Surrey Heath £170m (13.7x annual income)7. Rushmoor £120m (10.6x annual income)8. Cherwell £188m (10.3x annual income)9. Uttlesford £302m (10x annual income)10. Warrington £1.8bn (9.9x annual income)   Last week, Birmingham, the UK’s largest local authority, became the latest council to signal that it does not have the resources to balance its budget by issuing a section 114 notice. This followed similar recent failures at councils including Woking, Croydon, Thurrock and Slough. While Birmingham was brought low by a near £1bn bill for equal pay, and Slough was brought low by an accounting error, Moody’s said most councils were under pressure from the falling value of commercial property investments they had made, as well as high inflation, rising interest rates and the rising cost of services. “We expect more English local authorities to fail over the near term,” it said in the report. “Borrowing for commercial investment increased significantly over the past decade to generate revenues and offset a decline in government funding.” It blamed cuts to local authority funding under the government’ austerity drive since 2010 for fuelling higher levels of debt. It added: “This was facilitated by significant borrowing flexibility introduced by central government in 2003 and 2011. Borrowing rules have tightened since 2020, effectively ending local authorities’ property investment strictly for revenue gains, although legacy assets remain.” The report ranked the top 20 English councils for high levels of debt compared with their income. While Spelthorne’s £1.1bn of debt does not make it the most indebted, it has propelled it to the top of the list, as its debts are almost 87 times its annual income. At number six is Surrey Heath, which sits in the constituency of levelling up secretary Michael Gove. His department said local authority finances were a matter for local authorities and that central government funding had gone up. To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo by Alex Hinds/imageBROKER/Shutterstock