One in 10 biggest English councils risk bankruptcy over child protection bill | Local government

“Out of control” increases in child protection spending since the outbreak of the Covid pandemic have put one in 10 of England’s biggest councils at risk of effective bankruptcy in the next few months, a survey has revealed.

Many county councils and unitary authorities are “running out of road” to avoid insolvency as they grapple with high inflation, increases in children being taken into care, and massive bills for children’s homes, the County Councils Network (CCN) said.

The chancellor, Jeremy Hunt, is under increasing pressure to announce more funds for councils at this month’s autumn statement amid rising concern about the financial viability of local authority services, despite drastic cuts in recent years.

The CCN called for an injection of emergency funding for children’s services, where costs were “spiralling out of control”. Without urgent help, councils will be forced to make drastic cuts to other services and drain reserves to unsustainable levels to meet core child protection duties.

In the last few months, Hampshire – which said it was facing “financial meltdown” – Somerset and West Berkshire have all publicly disclosed they may fail to meet the legal duty to balance their books over the next 18 months and be forced to issue a section 114 notice, in effect bankruptcy.

Although recent section 114 notices in Croydon, Thurrock and Birmingham have been triggered by risky commercial deals turning sour and poor governance, the CCN said the underlying financial weakness of local government finances after a decade of cuts meant even well-managed authorities now faced insolvency.

Smaller district councils have separately said they could face bankruptcy as a result of a rapid increase in homelessness, while metropolitan boroughs are also struggling to balance the books. Total deficits across all English councils amount to £4bn over the next 18 months, according to the Local Government Association.

For the 41 counties and unitary authorities in England that took part in the survey, children’s services accounted for more than half of the total overspend, followed by adult social care, and home-to-school transport services. Total projected overspends for all CCN member services this year are projected to hit £640m.

The CCN pointed to a sharp increase in post-pandemic demand for children’s services, the soaring cost of care placements because of inflation, and a “broken” provider market dominated by highly profitable private firms charging more than £250,000 a week in some cases for highly specialist children’s residential placements.

There have been more than 20,000 extra child protection referrals in county areas since the pandemic, putting added pressure on children’s services, with over 1,000 more children entering local authority care as a result, the CCN added.

Barry Lewis, the CCN’s vice-chair and finance spokesperson, said: “This analysis lays bare the financial challenge facing county authorities. Historic in-year pressures are worsening an already bleak financial outlook, meaning our councils are facing down the barrel of a £4bn funding black hole.

“The majority of the £639m of additional and unexpected spending this year are simply outside of councils’ control. The number of vulnerable children requiring care has risen dramatically post-pandemic, while inflation and a broken provider market in statutory care placements mean councils face no choice but to pay spiralling fees.”

A spokesperson for the Department for Levelling Up, Housing and Communities said: “We continue to monitor pressures on all councils and we stand ready to talk to any council that is concerned about its financial position.

“Councils are ultimately responsible for the management of their own finances, but the government has been clear that they should not take excessive risk with taxpayers’ money. We have established the Office for Local Government to improve the accountability for performance across the sector.”