The financial landscape of many UK cities is increasingly dire, with numerous local authorities facing significant financial challenges that have been likened to being trapped in a financial black hole. This crisis is largely attributed to the rising costs of essential services such as social care and homelessness support, coupled with tightened financing and escalating inflationary pressures.
Updated: added “from larger banks and building societies providing personal current accounts” to “access to cash” for clarity.
A recent study by Fair4All has identified 18 local authorities where financial volatility is a major concern, and many of these areas are struggling with limited access to cash from larger banks and building societies providing personal current accounts. Out of the 361 local authorities in the UK, these 18 areas stand out because more than half of their adult population is facing financial difficulties, and less than half of the population can access cash within a mile radius.
South Tyneside is highlighted as the area most severely affected by these financial struggles. The city has one of the highest rates of adults living in difficult financial situations, with 58% of the population facing financial hardship, and one of the lowest percentages of people with access to cash within a mile radius, at just 27%. Other areas significantly impacted by financial instability include Harlow, Sunderland, Blackburn with Darwen, Peterborough, and Middlesbrough, which also report some of the lowest levels of residents’ access to cash.
The financial pressures on local authorities are compounded by a £9 billion funding black hole over the next five years, despite recent government funding allocations. English councils collectively hold around £23 billion in reserves, but these funds are not evenly distributed, leaving many councils at risk of financial failure. Metropolitan boroughs and unitary authorities are among those at the highest risk, followed by London boroughs and district councils.
Diane Burridge, Development Director at Fair4All Finance, emphasized the urgency of the situation, stating that the growing number of young people living in financial distress is a clear call for systemic changes. With 38% of the UK’s adult population currently facing financial difficulties, there is a pressing need for coordinated, systemic efforts to ensure financial stability is not a privilege but a minimum standard.
Burridge also highlighted the critical importance of access to cash from larger banks and building societies providing personal current accounts, which is becoming increasingly out of reach for many communities. She advocated for prioritizing financial inclusion by providing everyone with access to affordable and accessible financial services, particularly in areas with underdeveloped financial infrastructure. According to her, decisions made by companies and financial institutions must be aligned to develop inclusive policies and products that equip people with the tools and resources to build financial resilience. Only through collective efforts can a financial system be built that truly supports everyone, regardless of their situation and location.
The broader economic context of the UK exacerbates these local financial challenges. The UK economy has been flatlining since 2010, with all parts of the country suffering from stagnant productivity growth. If pre-2010 trends had continued, the UK economy would be £88 billion larger today. The north-south divide has also continued to widen, with the Greater South East’s share of UK jobs, output, and income increasing further.
In response to these challenges, there are calls for more fundamental reforms in local government finance and social care models. The Local Government Association has consistently argued for multi-year and timely settlements for councils to enable them to plan and make meaningful financial decisions. Despite the recent additional funding, many councils will still need to raise council tax and make cuts to local services to balance their budgets.
The Chancellor’s recent announcement to drive growth and competitiveness in the financial services sector also underscores the need for a balanced approach to regulation and growth. Rachel Reeves, the Chancellor, has argued that while regulatory changes post-financial crisis were necessary, they have gone too far in eliminating risk-taking and now hinder economic growth. Her plan includes setting new growth-focused remits for financial service regulators and publishing the first-ever Financial Services Growth and Competitiveness Strategy to support investment and innovation.
In summary, the financial struggles of UK cities are multifaceted and deeply intertwined with broader economic and regulatory issues. Addressing these challenges will require a comprehensive overhaul of local government finance, social care models, and financial regulations to ensure that financial stability and inclusion are achievable for all.
