UK councils will issue effective bankruptcy notices “like confetti” if the funding of local government is not urgently reformed, the leader of Somerset Council has warned.

Council leader Bill Revans was in Westminster on Tuesday, March 11, giving evidence to the housing, communities and local government committee within the Houses of Parliament.

Mr Revans – who was joined by other council leaders – said the entire funding system for adult social care needed urgent reform to prevent councils from across the UK filing for effective bankruptcy.

This comes less than a week after Somerset Council was able to set a balanced budget thanks to a higher-than-normal increase in council tax and permission from the government to borrow more money until assets can be sold off.

The committee is currently holding hearings on whether the current funding model for local government is “fit for purpose”, and will publish its recommendations to the government later in the year.

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Mr Revans told the committee on Tuesday morning (March 11) that the council had been “seeing increasing pressures” on local services – especially children’s services and adult social care – in recent years, which coincided with cuts in central government funding to local authorities.

He said: “We’ve seen a reduction in the funding to local government over a good number of years – I’m told around 40 per cent of our funding from central government has gone.

“We’ve almost sleepwalked into a situation where council tax is funding social care.

“Council tax was brought in back in 1991 as a temporary measure, almost, when the poll tax was ended – we’re funding social care out of a tax based on 1991 property values. No-one would actually come to that conclusion as being a way forward.

“The cost pressures of social care are rising at a rate faster than our ability to make savings – it’s like trying to sprint up a ‘down’ escalator, you just end up going backwards.”

Local authorities can normally only raise council tax by a maximum of 4.99 per cent per year without triggering a referendum – of which two per cent is ring-fenced for adult social care.

Somerset Council was granted “exceptional financial support” by the Ministry for Housing, Communities and Local Government (MHCLG) in the days before it set its budget on March 5, allowing it to raise its share of council tax by 7.49 per cent.

MHCLG also approved a “capitalisation directive” of £43m – essentially allowing the council to fund front-line services through external borrowing and the sale of assets (something which is not normally permitted).

Mr Revans said: “Having 31 councils applying for exceptional financial support no longer makes it exceptional.

“It’s welcome because we can manage our own affairs, but incredibly difficult because our residents are having to pay more while seeing less services.

Mr Revans was asked by committee chair Florence Eshalomi (the Labour MP for Vauxhall and Camberwell Green) whether means testing for school transport services would help to reduce cost pressures.

He responded: “That would be an option we could look at, but one of the significant factors is around inclusion in mainstream schools as well.

“We’re trying to work with our education sector to improve the inclusion offer, and it’s become much more difficult now the education system is more fractured with academy chains and multi-academy trusts.

“We’re investing in 15 in-school special education needs and disabilities (SEND) units to which should reduce that pressure as well.

“I was very disappointed to see the cancellation of the rural services delivery grant. It stands to reason that providing services in remote areas does cost more – when it’s a mile or two miles between houses, it costs more to collect the bins, and I think the funding formula should reflect that.”

Local authority-controlled schools receive the bulk of their funding through the dedicated school grant (DSG) – but many schools are currently running on a budget deficit due to the cost of special needs provision and longer-term financial pressures.

The Department for Education (DfE) currently runs a statutory override on the DSG, meaning that any deficit is kept off the books of the relevant local authority.

If this override is not either resolved or extended beyond its current deadline of March 31, 2026, huge deficits will suddenly appear on councils’ balance sheets across the UK – which will push many, including Somerset Council, into financial insolvency.

Mr Revans said: “I think we’re projecting that we’ll be £64m overspent there by the end of the financial year, if that is taken into account.

“I know that’s the case in many other councils. We’ll be looking at Section 114 notices [declarations of effective bankruptcy] being issued like confetti.”

The County Councils Network (CCN) has warned that 26 out of 38 higher-tier or unitary authorities would have to declare effective bankruptcy if this override was not extended – and that 18 of these would become “insolvent overnight” on March 31, 2026.

If Somerset Council was to issue a Section 114 notice, it would result in central government sending in commissioners who would have the power to sell off assets, cut services and drastically raise council tax with little or no democratic oversight – charging Somerset taxpayers more than £1,000 a day for their time.

Mr Revans said that he would support additional council tax bands being added for more valuable properties as a short-term fix until the government could bring forward more meaningful reform.

He said: “One easy fix that could be made is to put on additional bands above the current top band.

“At the moment it works in a quite iniquitous way, with no bearing on the ability to pay.

“We see council tax in some incredibly affluent areas of the county being only double what it is for a Band A property in the centre of Bridgwater, and I find that iniquity to be unhelpful.”

He added, more sardonically: “Commissioners don’t come cheap, and they decide when they leave – which is a great way to make a living.”