Mergers of English councils could lead to tax rises due to high debt levels | Local government

People in areas neighbouring bankrupt councils in England could see their council tax bills rise and services cut under Labour’s plans for the most radical shake-up of local government this century.

Under plans championed by Angela Rayner, the deputy prime minister, for a “devolution revolution”, the government is pushing to merge dozens of small district and county councils in order to streamline services.

However, some of the councils involved have run into severe financial distress – including Nottingham, Woking in Surrey and Thurrock in Essex – raising the prospect that people in nearby authorities could be left picking up the pieces.

The government wrote to affected councils last week warning that there would be no write-off of heavy debts to help smooth the process, with multibillion-pound debts being subsumed into the new merged councils.

In a letter to affected authorities, Jim McMahon, the devolution minister, said debt levels would need to be “managed locally, including as part of efficiencies possible through reorganisation”, including for areas where councils have in effect declared bankruptcy. “There is no proposal for council debt to be addressed centrally or written off as part of reorganisation,” he said.

Official figures show English councils have amassed £71.5bn in net borrowing between them, after several local authorities spent vast sums on commercial schemes in an effort to avoid austerity-driven cuts under the previous Conservative government.

Last month the Guardian revealed local leaders in Surrey had requested the government cancel £1bn in debt held by Woking borough council to enable a merger between the county’s 12 local authorities.

Other troubled councils set for mergers include Thurrock, which has debts worth £1.5bn after a failed investment spree, and Nottingham, which in effect declared itself bankrupt in 2023.

Sam Smith, the Conservative leader of Nottinghamshire county council, said ministers pushing to expand Nottingham city council’s borders would land residents of the county with worse services and higher taxes.

“Residents in my county, on the suburb, shouldn’t be forced to join the city to bail them out, just as the Labour government and council can’t be bothered to make sound political decisions to fix the reasons why they’re bankrupt.

“It is financially bankrupt because of inept decisions taken by its Labour leaders.”

Barry Aspinell, the Liberal Democrat leader of Brentwood council, which could be merged with Thurrock, said: “It would mean higher council tax and for a longer period. I don’t think these things are paid up quickly and the result is that residents are permanently in the red.”

Will Forster, Woking’s Liberal Democrat MP, said the council would never be able to pay off its debts. “Whether it is by the guise of reorganisation or another method, the government needs to recognise this and write off Woking’s unaffordable debts.”

Last week Rayner said she would take a “commonsense approach” to reorganisation as the government pushes ahead with a wider devolution package to create six new mayoral authorities.

A spokesperson for the Ministry for Housing, Communities and Local Government said: “Decisions on council tax levels will be taken by the new councils, but the secretary of state has powers to call referendums on an annual basis to ensure residents are protected from excessive increases.

“As announced earlier this month, we will facilitate reorganisation for those unitary councils where there is evidence of failure or where their size or boundaries are impacting on their responsibilities.

“The government has a framework to support councils in financial difficulty, and we will continue to work with best value commissioners to support financial recovery in areas where statutory interventions have been made.”