JEREMY Hunt insists the Government will “do what we can” to keep cash-strapped councils from collapsing, amid warnings of an “out of control” cash crisis in town halls.

There are mounting fears across the country over the financial state of local authorities and the risk to vital frontline services, with the likes of Birmingham and Nottingham already having been forced to effectively declare bankruptcy, following years of funding cuts and escalating demand for social care services.

In the North East, Middlesbrough Council voted last month to ask the Government for an extra £15 million of emergency funding, while others are in the process of finalising plans to slash spending and increase council tax bills to balance the books.

READ MORE: Jeremy Hunt on ‘levelled down’ North East report

Speaking to the Local Democracy Reporting Service (LDRS) in Durham on Thursday (February 8), the Chancellor said he accepted that councils are in “very challenging circumstances” – but that they “have responsibilities locally to run as efficiently as possible”.

The Department for Levelling Up, Housing and Communities recently announced a £600 million uplift in councils’ funding settlement for 2024/25 – but a cross-party group of MPs warned last week that it would be insufficient to resolve an estimated £4 billion shortfall over the next two years.

Clive Betts, Labour chair of the Levelling Up, Housing and Communities Committee, said councils in England faced an “out-of-control financial crisis” and that a failure from ministers to help bridge the £4 billion gap would “risk already strained council services becoming stretched to breaking point”.

Mr Hunt said on Thursday: “We have seen that [councils going bust] happening in very exceptional circumstances. We have also seen a lot of well-run councils able to make decisions that avoid those cuts and closures. 

“But we do recognise there are pressures. That is why we have not just put in £600 million in the last week to help local councils, but in the Autumn Statement 18 months ago I increased the annual social care budget by nearly 40 per cent – and social care is what most councils say is the single biggest pressure they face.

“We do what we can to help councils but we have to say also that they have responsibilities locally to run as efficiently as possible. We are seeing lots of councils managing very well despite what I fully accept are very challenging circumstances.”

Paul Frew, Labour’s cabinet member responsible for finance at Newcastle City Council, said that years of funding cuts since 2010 had “fundamentally broken” local government’s funding system.

His council is planning to slash its spending by around £60 million over the next three years, having already cut £369 million since 2010, and has proposed controversial measures like slashing the number of beds available for the city’s homeless and curtailing other crisis support services.

Cllr Frew added: “In Newcastle our spending power has been cut by 27.3 per cent since 2010. With these cuts we cannot provide the same level of services that were once expected and have had to prioritise the rising demand for essential services. The Government telling us to max out council tax is not a solution.

“We need more than a sticking plaster to fix the problem, it is unsustainable and government has repeatedly neglected to reform council funding. The money we receive has no relation to the needs of our residents, it is based on property values which obviously favours better-off parts of the country. We need fair funding for councils to deliver essential services and deliver for the needs of residents.”

Asked if reform of the council tax system was needed in order to provide more funding for councils in poorer parts of the country like the North East, Mr Hunt told the LDRS: “There is no perfect system. But we use the council tax system to redistribute a lot of revenue from south to north.

"What I would say is that the real long-term solution is to devolve more power to local councils, which is what we are getting with the North East devolution deal, so that you get civic entrepreneurship and the outstanding leadership of mayors like Ben Houchen which can attract investment to areas, help regenerate them, and create jobs and wealth and prosperity.

That is the long-term solution and we do want to give more authority and autonomy to local civic leaders and ultimately give them more responsibility for taxi-raising powers.”