Havering is on the brink of bankruptcy, council leader tells LBC

3 October 2023, 07:26

The leader of Havering Council in East London has exclusively spoken to LBC, saying they’re on the brink of bankruptcy.

Councillor Ray Morgon, has called the situation “desperate” and says there will be “some very tough decisions over the coming months”.

Recently, we’ve seen the likes of Birmingham, Croydon and Thurrock councils all effectively declaring bankruptcy but Havering Council say their situation is different – that they’re a low cost, efficiently run, healthy council and this isn’t about them mismanaging their budget.

They’re blaming financial pressures faced from the increase in costs of social care, homelessness, inflation and reduced Government funding.

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Cllr Morgon, who’s been at the helm since last year, says that they are now at the stage that whatever they do, it won’t be enough: “We are doing all the things you must do to balance the books every year which includes reducing head count, finding better low cost ways of delivering services, increasing income and selling any surplus assets.

"We are at the stage now though that whatever we do, it is not enough due to the massive increase in costs of social care and homelessness. And unlike the NHS, this has been badly funded by the Government and does not take into account individual circumstances of councils like Havering.

"For example, we have high council tax, but low Government funding due to the way the funding formula works. We also have one of the oldest populations in London, and one of the fastest growing younger populations in the country.

"Add to this the Covid-19 pandemic, which impacted us immensely especially around young people needing mental health care support along with more long-term conditions as a result of elderly care. More people moving into the borough means more strain on housing too, especially homelessness.

"Government legislation has also made it more onerous on private landlords and the number of private sector leasing properties available to us has dramatically reduced too.

"The policy on benefits caps also impacts what people can afford. All of this means we just can’t keep up with demand.”

Havering Council are now calling on the Government to urgently “start looking at longer term solutions instead of short term fixes”. 

Some of the things they’re asking Government for are:

• Enabling us to keep 70% or a greater percentage of business rates over the next five years to help replenish budgets.
• Growing the private sector which should create better investment and growth in regions. Although Freeports are in place to support this, Government policy shifted lessening their impact. There should be another look at how these can be extended and themed to enable 100% business rate collection for an indefinite period.
• As mentioned earlier, the impact of Covid is still being felt. Particularly around mental health care for younger people. This needs to be addressed to help support residents back into normal life and help lessen the impact on council budgets. This adds to the burden of complex social care issues that have to be funded.
• There also needs to be an end to funding disparity in regions like London recognising the difference between, for example, inner and outer London and the change in demographics.

For the longer term:

• The Government needs to implement their review of the fair funding formula.
• We propose that social care is treated like the NHS – it needs to be nationally funded so that the right areas get the right money. It should no longer be a postcode lottery.
• We should also move to the Scottish model of not for profit home care so the focus moves back to people, not making money. The free-market economy on care has become a cash cow for those wishing to benefit from this industry. It should be about people, not about profit.

Havering Council’s budget shows that they have £48m of General Balances and Earmarked reserves left and with a projected overspend in 2023/24 of £23m.

Next year, they have a potential gap of £14 million rising to £51.8m over a four-year period to 2028.

A DLUHC spokesperson said: "Local authorities have seen an increase in Core Spending Power of up to £5.1 billion or 9.4% in cash terms on 2022/23, with almost £60 billion available for local government in England.

"For Havering Council, this represents an increase in Core Spending Power of up to £18.5 million (9.2%) – making available a total of up to £218.7 million in 2023-24.

"We stand ready to speak to any council that has concerns about its ability to manage its finances or faces pressures it has not planned for.”