Local government debt has increased by 78% since 2010 as councils attempted to make up for cuts to Government funding, new research has revealed.
A new analysis conducted by the National Institute of Economic and Social Research (NIESR) found that the total debt held by councils across the country increased by £52bn to £119bn between 2010 and 2023.
During this period, local authorities took advantage of relaxed borrowing restrictions and low interest rates to finance property investments as they tried to compensate for a 60% reduction in Government funding.
However, the subsequent increase in interest rates has meant that local authorities are now spending increasing amounts on servicing debts.
According to the NIESR’s findings, on average council spending on debt servicing has risen to 15%, totalling £3.2bn a year, while councils' average net worth has fallen by a record £80bn since rates began to rise.
The NIESR warned: ‘With a growing number of local authorities declaring bankruptcy since rates began to increase, an evaluation of local government finances is needed to understand whether these were exceptional cases, or the start of a worrying trend of insolvency in one of the most important providers of public services; the analysis provided in this briefing note suggests more evidence for the latter than the former.’
If this article was of interest, then check out, 'What really caused the council funding crisis?' by Max Mosley, senior economist at NIESR.
