Councils could face tighter controls on borrowing and investment decisions under new government plans aimed at preventing financial mismanagement and protecting taxpayers from costly local authority failures.
The Government has announced that long-standing powers designed to tackle excessive borrowing, risky investments and poor financial decision-making in local government will be brought into force, subject to a public consultation which will run until 6th August
The measures are intended to provide ministers and regulators with earlier warning signs of financial trouble by monitoring councils’ debt levels, investment activity and revenue streams. Officials say the new system will help identify emerging risks before they develop into full-scale financial crises, enabling faster intervention where necessary.
The consultation will examine how the powers should operate in practice and what additional measures could be introduced to strengthen financial oversight across local government.
The move follows a series of high-profile council financial failures in recent years. Among the most notable cases was Woking Borough Council, which accumulated more than £2 billion in debt through borrowing linked to commercial ventures – almost 100 times its annual budget. Meanwhile, Thurrock Council built up debts of £1.5 billion after borrowing heavily to fund investment projects that later failed.
Although both authorities have since taken steps to reduce their borrowing, the cases have raised concerns about the risks posed by councils pursuing large-scale commercial investments.
Under the proposals, new financial risk metrics would be introduced to improve transparency and oversight, helping ensure that borrowing by local authorities remains affordable and sustainable.
The Government said the reforms form part of a broader effort to stabilise local government finances. Alongside the new measures, ministers have pledged £78 billion for councils through the Fair Funding Review, delivered as part of the first multi-year local government funding settlement in a decade.
Officials say the combination of increased funding and stronger financial safeguards will help councils deliver services while reducing the likelihood of future financial crises.
The powers were originally established under the Local Government Act 2003 and later strengthened through amendments contained in the Levelling Up and Regeneration Act 2023. However, regulations are still required to set the specific risk thresholds that would trigger intervention and determine how the powers would be applied in practice.
The Government stressed that the measures will not come into force until the consultation process has concluded and final regulations have been approved.
Local Government Minister Alison McGovern said: ‘In Woking, Thurrock, and other councils we’ve seen poor investment decisions leaving taxpayers footing a big bill.
‘We can’t afford to wait until a council is on the brink of collapse to act. That’s why we want to bring in new powers so we can identify the risks and act before its too late.’
Photo: Anne Nygård
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