Liverpool warns of council bankruptcy

The Mayor of Liverpool has added his voice to the growing number of local government figures warning of council bankruptcy.

A Liverpool City Council financial report was put to the Mayor’s Cabinet last Friday. It stated that the council will only have enough money left to run mandatory services within two years. The city must save £329m in six years – £16m more than thought before the most recent changes to funding arrangements.

“People need to understand that over the next few years we are going to be stopping doing things that we currently take for granted. If we do not, we will simply go bankrupt,” said Mayor Joe Anderson.

Paul Brant, Liverpool’s cabinet member for finance and deputy mayor, spoke to Room 151. “We don’t want to be saying ‘Liverpool is going bankrupt’” he explained. “But we will be going bankrupt if we don’t change radically. A lot of change is tangled up in HR, renegotiations, things like that, so it often takes 6-18 months to go through. That’s why we have to put the difficult things into place starting now.”

As well as the report and Friday’s summit to start deciding the way forward for the council, Liverpool has published a ‘Finance Mythbuster’ Q&A to answer questions such as “why don’t you dip into your reserves to cover the gap?” and “you’ve recently announced that you’ve borrowed money to buy Everton FC’s training ground – why do that if you’re cash strapped?”

Brant said that the mythbuster is trying to address the public’s confusion over council finance. “There are very few people, even in local government offices, who understand the complexity of local government finance,” he said. “People don’t understand the different ways we can spend our money – you have to explain to people that you can’t use capital for reserves. So to help residents get why easy solutions don’t work you have to give them some understanding of the rules and regulations.”

On its finances Liverpool CC points out:

• 10% of its income comes from council tax, which is capped at a level less than inflation

• 10% of its income comes from fees and charges

• The city council is responsible for collecting £92m in business rates “at a time when income has flatlined and many companies are struggling”

• Around 45,000 working age households must pay an extra £88 per year due to welfare reforms, in particular the council tax support scheme, and are struggling

LGA chairman Sir Merrick Cockell said last week that councils could go bust. He told the Guardian: “We are being pushed into a position where either things will fail or the system has to change.”

Mayor Jules Pipe of Hackney also spoke of councils “going to the wall” as he called for a new inspection regime for local government finance to replace the Audit Commission. “I think we are going to see authorities slide into difficulty quite unnoticed,’ he warned. “I think this government began with some hubris about ‘it would be alright if a few go to the wall, it would be a warning to the others, we can afford it’. But as some start going that way in slow motion, perhaps near election time, then they might not be so sanguine about it.”