Why Dudley Council nearly went bust: financial crisis explained ahead of meltdown-saving budget

A meeting of full council on Monday is expected to approve the financial package for 2024/25 which, despite the savings, will still require the use of dwindling reserves to fill a £5.5m gap between spending and the authority’s income.

That will not leave enough for the following year and the council will remain at risk of having to declare itself effectively bankrupt if it receives any large unexpected bills.

Dudley’s problems are a combination of rising costs, cuts in grants from government and the council’s long-term policy of low tax and low reserves.

During the last decade grants from Westminster, which make up about a quarter of the council’s funding, were cut by around 40 percent in real terms according to the Institute for Government.

Along with that, councils complain that details of what they are going to get are not released until too late and only in one-year terms.

Last month the Local Government Association said: “This is the sixth one-year settlement in a row for councils which continues to hamper financial planning and their financial sustainability.”

Like many other local councils, Dudley has been suffering as a result of rising costs, especially in the adult social care sector.

Last autumn the authority faced unexpected extra costs of around £7m in adult social care and another £5m in children’s services which added huge pressure to its budget.

This shock meant at the end of the current financial year the council will need to take an extra £9m from its general reserves to balance the books.

Reserves in Dudley have been historically low – similar councils keep levels in general reserves at around 55 percent of their spending.

Dudley’s chief accountant’s report to the budget meeting on Monday says the council has an equivalent level of eight percent now and without further action the level of reserves will fall to four percent of spending.

Following an intervention by external auditors in February, the authority allocated £3.3m to a contingency fund which will be used if there are unexpected financial pressures.

In recent years, Dudley Council has been a low council tax authority, on average ten percent less than similar authorities, but that comes at a cost.

It means the authority is about £10m per year worse off and leader, Councillor Patrick Harley, recently described the low tax policy from both Conservative and Labour administrations as, with hindsight, a ‘huge mistake’.

If the budget is approved, Dudley’s council tax will be set at £1,937.36 for a Band D property including £215.55 for the police and £75.20 for the fire service.

This is an increase of five percent or £93.49, not as much as bankrupt Birmingham City Council which has announced a ten percent hike in council tax for 2024/25 – an extra £190 on their Band D property.

Dudley is currently carrying out a total review of how it operates as it seeks a way out of its financial problems.

Cllr Harley believes the review will return Dudley to financial stability however he recently told a meeting of the Cabinet that if it fails the authority is ‘doomed’.