Councils have been discussing the need to tighten their budgets for years due to government funding cuts.
Councillors are now concerned that they are on the verge of a financial crisis.
Two council leaders have described the situation as “unsustainable”.
One leader mentioned that there are no more areas to cut costs in order to balance the budget.
Unlike the government, local authorities are not allowed to borrow money for day-to-day expenses.
It is a legal requirement for them to have a balanced revenue budget, where expenses are covered by income.
Officials in Greater Manchester are finding it increasingly challenging to achieve this balance. Alarmingly, a quarter of English councils are expected to request a government bailout soon.
Therefore, there is anticipation for the Chancellor’s budget announcement on October 30 to see how Greater Manchester’s finances are holding up.
What is the financial situation in Greater Manchester?
The largest council, Manchester, forecasts a £65m budget deficit by 2028.
This year, it is facing an overspend of £17.4m, which will deplete its reserves to £6.5m if £50m in cuts are not made.
Salford is also experiencing an in-year overspend, with £6.8m left in its reserves.
Bolton anticipates a £7.4m budget shortfall next year, but leader Nick Peel believes it may be even higher.
Bury is confronting a £22m gap and needs to dip into £15m of reserves over the next two years. Rochdale is in a similar situation, projecting budget gaps of £2.8m by 2025/26, increasing to £20m by 2027/28.
Tameside Council has not provided recent updates on its financial position, but previously estimated budget reductions of £17.3m in 2025/26, rising to £67.6m in 2028/29.
Oldham has overspent by £21m this year and is struggling to make £3.8m in cuts out of the required £20m. It is expected to have £41m left in its reserve.
However, some councils, like Wigan, have reserves of £100m remaining, with only a £17.9m budget deficit expected next year.
Stockport has significant reserves amounting to £82.5m, while Trafford has £53m in its reserve, providing a safety net.
How did this situation arise?
Central funding to councils was reduced in 2010 by the coalition government and continued by successive Conservative Chancellors. Local authorities in the north often highlight that they faced deeper-than-average cuts.
Manchester’s City Treasurer, Tom Wilkinson, stated earlier this month: “If we had the average cut we would have £74m more. We have been disproportionately affected by austerity.”
However, the current financial crisis is not solely due to austerity measures. Since the pandemic, costs and demand have risen in children’s services, adult social care, and special education needs.
For example, in Oldham, the cost of an external children’s placement rose from £5,128 per week to £6,629 per week in just one year, showing an inflation rate of 29 percent.
Why not use the reserves?
Some councils, such as Wigan, Trafford, and Stockport, have substantial reserves, leading to questions about why they are not using them.
Officials are often hesitant to spend reserves as they can only be used once. Additionally, having a smaller reserve limits a council’s ability to handle emergencies.
How many councils will require a bailout?
A study by the Local Government Association found that one in four English councils are likely to seek an emergency government bailout in the next two years to avoid bankruptcy.
Currently, 18 authorities have requested exceptional financial support (EFS) from the government, allowing them to borrow from the capital budget to cover revenue spending.
Nearly half of the councils in the study stated that they would need EFS if government grants do not increase this year.
In Greater Manchester, none of the councils contacted by the Local Democracy Reporting Service expect to apply for EFS in the next two years.
When will more information be available?
Budget day is on October 30, when Chancellor Rachel Reeves will announce the government’s spending plans for the upcoming year.
This announcement could provide some clarity for councils regarding local government spending overall.
Individual councils will receive their financial settlements in late December, confirming the amount of central funding they will receive. They will then set council tax rates and aim to pass a budget in March.
It will be a nervous Christmas for some councils.