Cash-strapped councils spend £2 of every £5 on debt and pensions

Telegraph

a day ago

Councils are spending an average of £2 in every £5 on staff pensions and debt interest payments before a penny is allocated to essential services.
Some 18pc of council tax revenue is used to service the cost of huge loans taken out over the last decade, as local authorities struggle to cut costs and face greater demand for services.
Staff pension contributions account for a further 23pc of revenues on average, meaning that 41pc is swallowed up before any money is spent on core services such as social care and bin collection, according to official figures obtained by The Times.
Cuts to central government funding mean local authorities have accumulated large piles of debt to cover their costs. Councils now collectively owe at least £148.5bn – a 60pc rise since 2015.
Many councils have also borrowed money to fund costly real estate investments, regeneration initiatives and infrastructure projects.
At the same time, council pension obligations have soared. A Telegraph investigation previously found that 12 Scottish, nine English and three Welsh local authorities now shell out more than a third of their council tax on staff pension contributions, with the total bill exceeding £730m a year.
The Local Government Pension Scheme already pays 2.3 million retirees, and another five million current and former workers are building up generous, inflation-linked pensions.
Rising piles of debt are raising concerns about the sustainability of council finances. Birmingham and Thurrock are among the six councils to have declared themselves effectively bankrupt over the last five years.
The Local Government Association has warned that as many as a quarter of councils were likely to need a government bailout in the next two years to avoid bankruptcy.
Local authority funding comes from multiple sources, including government grants, but tax receipts represented more than half of English councils' core spending power last year, according to the Institute for Fiscal Studies.
Homeowners and renters are having to endure soaring council tax rates across the country despite cuts to services as councils attempt to plug gaps in their finances.
Almost half of properties in England now face bills of at least £2,000, while the number of households on the hook for a £5,000 bill has quadrupled.
Nine in 10 areas across England endured the maximum 4.99pc council tax rise in April. Parts of Scotland and Wales were slapped with even higher increases.
Residents also face paying hundreds of pounds more for services once covered by their council tax bills, as cash-strapped authorities introduce new levies by stealth.
Birmingham City Council has come under fire for introducing a so-called 'rat tax' after removing free pest control services to save £400,000. Instead, residents have to pay a £24 fee as the Midlands city is battling severe rat infestations made worse by bin worker strikes.
At the same time, town hall bosses are enjoying record salaries, with almost 4,000 local authority staff receiving more than £100,000 in 2023-24, up by more than a quarter in a year.
Joanna Marchong, of the TaxPayers' Alliance campaign group, said that council debt had 'spiralled out of control'.
She added: 'Local authorities have accumulated a substantial debt burden by making risky investments or ploughing money into other imprudent or failed projects, like Birmingham's disastrous IT system or Nottingham's Robin Hood Energy.
'Now, we are seeing the consequences of ever-higher council tax bills for residents.'
Pete Marland, of the Local Government Association, said: 'Local government finances remain in a fragile position, the impact of which has been cumulative for some time.
'A sustainable, long-term financial model for local government must lead to all councils having adequate resources to meet growing cost and demand pressures.'