English councils face new checks on risky borrowing

In a GOV.UK announcement published on 28 May, the government said it wants to switch on new powers to stop councils being pulled into excessive borrowing, risky investments and other poor financial decisions. If council finance sounds distant, it is worth pausing here: when a council gets its sums badly wrong, local services can suffer and residents can end up paying for the clean-up. The plan is about spotting trouble earlier. Ministers want to track each council’s investments, debt and revenue so warning signs show up before a financial problem becomes a crisis. The argument from government is simple enough: it is better to intervene early than wait until a council is close to collapse.

At the centre of this proposal is something called capital risk metrics. In plain English, these are checks that look at how much a council has borrowed, what that money has been used for, and whether the overall level of risk still looks affordable over time. They are meant to make it easier to tell the difference between normal borrowing for public projects and borrowing that is starting to look dangerous. **What this means:** borrowing is not automatically reckless. Councils often borrow to build or improve things that matter locally. The issue is whether the debt is manageable and whether the investments behind it are sound. The government says new metrics would make that judgement clearer and more transparent.

The reason ministers are moving now is the damage already seen in a handful of councils. GOV.UK points to Woking Borough Council, which built up more than £2 billion in debt, nearly 100 times its annual budget. It also points to Thurrock Council, which ran up £1.5 billion in debt through borrowing used to finance investments that later failed. Both councils have since curbed excessive borrowing, but the scale of those numbers explains why this has become a national warning sign. For readers trying to picture the risk, this is the key point: once debt reaches that level, the problem does not stay inside the town hall. It can put pressure on day-to-day budgets, lead to cuts or disruption, and leave taxpayers carrying the cost for years. Local Government Minister Alison McGovern said poor investment decisions in places such as Woking and Thurrock have left taxpayers with a large bill.

The powers themselves are not fully in force yet. A consultation opened on 28 May and runs until 6 August, asking how the new metrics should work, what risk thresholds should trigger intervention and what other measures could help identify financial danger earlier. The consultation also considers debt held by combined authorities, which matters because borrowing risk is not limited to one type of local body. The legal route already exists in part. These powers were first introduced through the Local Government Act 2003, and section 12 was later amended by the Levelling Up and Regeneration Act 2023. What still needs to happen is the detailed rule-writing: ministers must decide exactly which thresholds would bring a council into scope and how any intervention process would operate in practice.

Alongside the tougher oversight message, the government says £78 billion will be made available through the Fair Funding Review as part of the first multi-year settlement for councils in a decade. That matters because stronger checks alone will not repair local finances. If councils are expected to plan responsibly, they also need funding arrangements that are stable enough for long-term decision-making. **What this means for you:** this is not just a story about accountants and balance sheets. It is also a story about whether councils can keep services running, maintain local infrastructure and make decisions without drifting into high-risk schemes. Better scrutiny may help prevent the next failure, but residents will still want proof that oversight is fair and that funding pressures are being taken seriously too.

The next step is a period of public and professional scrutiny. Councils, finance officers and other interested groups now have until 6 August to respond to the consultation on GOV.UK. Only after that process will the government decide whether to bring the powers into force and how strict the final thresholds should be. For now, the bigger lesson is straightforward. Council borrowing is not a technical side issue; it shapes what local government can safely do with public money. This consultation is really about who notices the warning signs, how early they notice them and what should happen before a local finance problem becomes a local services problem as well.