Michael Gove blames councils’ financial failure on poor leadership

Michael Gove admitted he is concerned about acute financial pressures on local government, but blamed “poor leadership” for an increase in the number of councils which have declared effective bankruptcy.

The Local Government Association and others have warned that growing funding pressures threaten vital frontline services, with the prospect of more councils joining the seven which have issued a section 114 notice since 2020.

Giving evidence to the Levelling Up, Housing and Communities Committee on Wednesday, Mr Gove was asked for his assessment of council finances.

He said: “I am concerned. I think it’s important to put into context some of the issues that are being raised.

“So I think it’s important to recognise that core spending power has increased and the amount of money that central government is allocating to local government has increased above inflation.”

Mr Gove said he had met with senior local government figures earlier in the day, adding they agreed a recent estimate that one in five councils could soon declare bankruptcy was “at the top-ish end of the scale”.

But he insisted poor decision-making at some councils rather than Government funding cuts had led to financial distress.

Mr Gove added: “I think that certainly if one looks back, it is absolutely the case of each of the local authorities that have had to issue section 114 notices have had failures of leadership management and governance, and some have taken risks that were not merited.

“It’s certainly the case also that we’re in a situation where local government, like other parts of the public sector and government, is facing significant pressure.

“It may be the case in the future, that there are some local authorities that have been relatively well managed that will face particularly acute pressures, but I wouldn’t want to at this stage predict that a section 114 notice will be issued by a local authority that has been well managed.

“So far there has been a direct linkage between poor leadership and the subsequent issuing of section 114 notices.”

Mr Gove declined to reveal how many councils his department had identified as at risk of failure, but said it was “significantly fewer” than one in five.

He added: “It is fair to say that there are systemic pressures and… we have an understanding of what is happening in local authorities across the piece. It’s the systemic issues that particularly preoccupying concerns.”

Mr Gove was challenged on how councils will cope with expected further cuts in 2025 and beyond.

He said: “I wouldn’t want to pre-empt the spending review that will inevitably occur.

“I think it’s first of all the case that the decisions taken in the autumn statement were designed to ensure that we had stronger long term growth.

“That strong long term growth will improve the public finances and that will be taken into account at the time of the next spending review.”

Children’s social care services have emerged as a key driver of financial pressures on councils, with concerns over the involvement of the private sector and subsequent rising costs.

Mr Gove acknowledged the problem and questioned whether private firms should be providing certain services.

He said: “One of the most acute [problems] is the way in which residential children’s homes are to a significant extent, to a greater extent than one would want, owned and managed by private equity funds who are engaged in profiteering.

“The scale of the profit they make is, to my mind, excessive.”

Mr Gove added wider reform was needed to prevent children ending up in residential care, but suggested the Government could consider intervening to adjust the market.

He said: “The private equity model is appropriate for the provision of some services, but in many cases I find it disturbing the way in which they are extracting not just the necessary profit in order to make sure that they have a successful business model, but an excessive level from the public purse.”

The Government’s announcement that people entering the UK to work in adult social care will be subject to visa restrictions which prevent them from bringing family dependants has led to warnings of further pressure on a severely stretched workforce.

Mr Gove said the impact of the changes was being assessed.

He added: “We anticipate that there will be a reduction, but not a dramatic reduction, in the number of people who are coming in to work in the adult social care sector.”

When challenged on how he knows the impact will not be “catastrophic”, Mr Gove added: “I can’t be certain of anything, but the figures that I have examined were modelling that was conducted by the Home Office and the particular change that was made I think will have an impact on the margins, undoubtedly, but not a significant impact.”