UK government refuses public inquiry into bankrupt Essex council

The UK government has rejected a request for a public inquiry into the bankruptcy of Thurrock council in Essex, forestalling a potential wider probe into systemic failures in oversight and funding of local authorities across England.

Residents of the Conservative-run town hall, which collapsed into insolvency in December 2022, first petitioned for an investigation last year, expressing anger that they would be paying the price for mismanagement at the council in higher taxes and stripped-back services for years to come.

A string of other towns and cities face parallel pressures amid a broader national squeeze on local government finances. Whole councils have gone bankrupt including Birmingham, the London borough of Croydon and Woking in Surrey.

For a variety of reasons, including reckless commercial strategies and diminished spending power, these councils have been forced to ration services and raise local taxes by exceptional amounts after failing to balance their budgets.

In a letter to Thurrock council this week, Simon Hoare, minister for local government, said he understood the “strength of feeling in the local community”.

But he argued that a best value inspection report published last year, together with ongoing government oversight, was the most effective way to get to the root of the issues.

Hoare said that a public inquiry would not, in his view, “provide further understanding into the historical failings or management of the council that is not being achieved through statutory intervention”.

The minister was responding to a letter from council members sent to the Department for Levelling Up, Housing and Communities in February requesting a public inquiry. They said that “financial failings have led to a breakdown of trust and confidence in the council and have caused local taxpayers to bear the burden”.

Thurrock’s demise has been among the most dramatic in a spate of six council bankruptcies since 2021, with the authority forecasting a deficit of £470mn in 2022-23 with a budget less than a third of the size.

Like other councils encouraged during the decade following the 2008 financial crisis to make commercial investments to offset cuts in central funding, heavy borrowing and poor decisions have left Thurrock financially exposed.

The council has sold off assets to pay down a £1.4bn debt mountain and was granted £635mn in capitalisation directions, enabling it to help meet some revenue costs through capital resources.

But it was still spending an “unsustainable” 30 per cent of revenue on debt servicing, according to leader of the opposition Labour party on the council John Kent.

Elected members of the council unanimously requested the public inquiry last month after a petition from residents reached a required number of signatures. They argued in their letter to DLUHC that this was “in the national interest”.

The failure of Thurrock and other councils that have suffered a similar fate “suggests that there may be a broader systemic problem, which a public inquiry could usefully consider,” they said.

Westminster-imposed commissions reviewing town hall bankruptcies have to date focused almost exclusively on governance failures at a local level. None of the reports into Thurrock or elsewhere have probed the contribution of national policy. 

Kent, who has championed the inquiry, listed the scrapping of the Audit Commission, the public body that oversaw local government accounting until 2015, the failure of external auditors to hold local authorities to account since, and a sharp decline in central funding since 2010 among systemic failures.  

In Thurrock’s case, the council had gone on a spree of short-term borrowing from many other local authorities to invest in solar energy and other ventures which ultimately failed, leading to hundreds of millions of pounds in losses.

Local government researcher Jack Shaw said the case for a public inquiry into what went wrong was strong because residents of Thurrock and other places sharing its fate, were paying directly for state failure in a way that was exceptional.

“The government continues to avoid difficult questions that seek to answer why local authorities England-wide have reached the precarious positions they now have,” he added.