British councils to receive major £500m emergency bailout in bid to avert bankruptcy crisis

Lower-tier district authorities will also receive a funding boost worth between £30-40million.

A change to local finance settlement this late is “unusual”, but emergency extra funding will prevent the immediate threat of multiple councils issuing bankruptcy notices, a senior council source has said.

The bailout comes as Rishi Sunak faced pressure from more than 40 Conservative MPs to give at-risk councils a greater funding settlement.

The Tory backbenchers, with organisation from the County Councils Network, signed a letter to the Prime Minister warning of the consequences of inaction – councils would be forced to axe frontline services and raise council tax in an election year.

The Government also met with district council leaders on Tuesday who urged them to rethink the settlement due to the rising costs of fixing homelessness.

Next year’s planned local Government finance settlement included a £64billion funding boost, which The Department of Levelling Up, Housing and Communities said averaged a real terms increase of 6.5 per cent for councils.

The department said the funding would ensure councils can “continue making a difference alongside our combined efforts to level up”.

However, the total spending power local councils could wield includes council tax hikes, meaning residents would pay more for everyday services.

The move comes amid reports of a combined debt of almost £100billion among councils across the UK, which Commons public accounts committee chair Dame Meg Hillier said was “staggering”.

The combined debt across UK councils totalled £97.8billion, said the BBC – with Woking, Thurrock and Nottingham City Councils all going bust in the last two years alone.

However, just two of the top ten councils with the largest debts – Birmingham and Nottingham – have issued a Section 114 bankruptcy notice, which would prevent all but essential services spending.

In June last year, Birmingham unofficially froze spending after it revealed a £750million bill to settle equal pay claims.

In Woking, where debt is rising to £1.6billion, the council is mulling over cuts to key community and arts facilities in the area – which Paul Couchman, treasurer of the Save Our Services in Surrey (SOSiS) campaign group, said would impact the most vulnerable.

Couchman said parts of Surrey, one of the richest areas in the UK, would “become a wasteland” if cuts were enacted.