Why councils across UK are going bust?

Lots of talk about bankruptcy of local councils in the UK. Let me offer my explanation here on what is going on. And dont get me wrong: we will see similar developments in other European countries as well to varying degrees.

There are three to four factors that interplay:

1. Austerity measures reduced central government funding to local councils. There were drastic real cuts to local government finances, at the same time, there were growing demands due to an ageing population and growing statutory obligations. This put pressure on councils to find new sources of income. As a result, many invested heavily in commercial real estate and other projects/ventures.

2. Structural transformation in retail away from offline to online has resulted in a secular trend eroding business rates tax base for local councils. This eroded the tax base gradually — and even where business closures were stopped, the quality of businesses declined (think pound stores, charity shops etc.).

3. The COVID-19 pandemic had both immediate and ongoing economic impacts. Immediately, lockdowns reduced business activity and revenues. Business rates being a primarily source of revenue took a hit.

4. The persistence of working from home has resulted in a structural net decline in demand for office real estate further putting downward pressures on business rates revenues as how we live and work finds a new equilibrium.

So in summary – austerity drove councils to commercial investments for funds, but COVID-19 and structural changes then undermined the value and viability of those very investments at the worst possible time.

Whats even worse, if my reading of the situation is correct, central government has close to no visibility on what is happening – and that appears to be mostly by choice. It need not be that way, but nobody is explicitly asking. The English need to learn to speak plain English. Don’t assume, ask!

Policies like Eat-out-to-help-out and a few other things we can mostly interpret as feeble attempt to slow down structural change. There are financial stability considerations at play everywhere.

I have worked on each of the above topics using granular high dimensional data. If scientific publishing was not designed to artificially slow down the pace of knowledge dissemination much of this would be out in the public domain already.