Councils to be prevented from making risky investments
Taxpayers to be protected from financial mismanagement in local government
Powers will be used to prevent excessive borrowing, risky investments and poor financial decisions in local government.
Announced today (28th May), these powers will be switched on to help the government find early warning signs by tracking every council’s investments, debt, and revenue to spot financial risk before it becomes a crisis, allowing faster action to protect taxpayers.
How these powers will work and what other measures could be used to find risks will all be considered in a consultation that has launched today.
In recent years, some councils have borrowed excessively in risky financial projects. Woking Borough Council amassed over £2 billion in debt, nearly 100 times its annual budget. And Thurrock Council built up £1.5 billion in debt through borrowing to finance failed investments, though both have curbed excessive borrowing since.
The new metrics will strengthen oversight and transparency and ensure that borrowing across local government is affordable and sustainable.
Local Government Minister Alison McGovern said:
In Woking, Thurrock, and other councils we’ve seen poor investment decisions leaving taxpayers footing a big bill.
We can’t afford to wait until a council is on the brink of collapse to act. That’s why we want to bring in new powers so we can identify the risks and act before its too late.
This is alongside making £78 billion available through the Fair Funding Review to get councils back on their feet through the first multi-year settlement in a decade.
For more information:
- The consultation will run from May 28 to August 6. The consultation can be found here: Capital risk metrics implementation and mitigation measures - GOV.UK
- These powers were previously introduced in The Local Government Act 2003, with section 12 that was amended by the Levelling Up and Regeneration Act 2023.
- To operationalise these powers, regulations are required to specify the risk thresholds that would bring a local authority into scope for intervention, alongside the wider operational framework for how the powers would be applied. These powers will only come into force following the consultation.
- The consultation also sets out considerations relating to Combined Authority debt.