What went wrong with Gloucester City Council's finances?

Responsible for delivering services to more than 130,000 residents, Gloucester City Council is one of Gloucestershire's largest local authorities.

But it was revealed this week the council effectively went bankrupt 18 months ago.

So how does a authority go bust? And what happens next?

While councils cannot technically go bankrupt in the same way a business can, because they still have to provide statutory services – like bin collections – for residents, a council meeting this week heard Gloucester City Council moved in to the red last year.

The authority recently found it had a financial deficit of £7m combined from both the previous and current financial year, and it no longer has any cash reserves.

The Liberal Democrat minority administration said this had been caused by a number of factors, including an over estimation of how much some services would make.

For example cemeteries, the crematorium and car parks brought in £500,000 less than expected this year alone.

The council's investments are also not performing as well as predicted.

Its commercial property portfolio - which includes St Oswalds Retail Park and Eastgate Shopping Centre, which it owns, and Kings Walk, which it leases - is expected to make £1.78m less than anticipated this year.

And it has suffered higher interest on borrowing and reduced income due to delays in completing its flagship Forum development.

It also blamed poor accountancy practices on the cyber attack it experienced four years ago, which led to it having a series of incomplete annual accounts.

In September, the council found it was £1.5m worse off than expected, a precursor to the latest figure of £7m which was announced at the start of December.

In the short-term, no. The council has a legal duty to provide statutory services, which includes bin collections, planning, housing and public protection.

However, savings will need to be made to ensure the authority can return to financial solvency.

This means councillors will look to make cuts in the upcoming budget for 2026-27 – a plan which will be set in February.

This in turn could mean some of the services it provides may be reduced.

It is already openly discussed the possibility of ending the lease with English Heritage for Blackfriars Priory, reducing support for festivals and cultural events, and reducing museum opening days.

The prices for paid for services, such as parking charges and green and bulky waste collections, also look set to rise.

The administration said it was considering job cuts and a freeze has been put on recruitment.

The council has agreed to ask central government for up to £17.5m to help it keep afloat in the short-term. If approved, this will likely arrive in February.

It is also planning to sell some of its commercial investments to raise money.

Council leader Jeremy Hilton stressed the authority will not hold a "fire sale" - a sale of assets at a very low price - and it will only let go of its investments if they achieve "top market value or above".

The administration said it was confident a loan from central government will be enough to tide it over while it gets the council's finances in order.

Failing this, the council can issue a section 114 notice, as Birmingham City Council did two years ago. This means a council cannot make new spending commitments and must meet within 21 days to discuss what to do next.

A last resort would be for the government to step in and effectively run the authority.

There is also a question to be answered about timescales when it comes to putting the council back on an even financial keel.

Gloucestershire is going through the process of getting rid of its seven existing county and district councils, to replace them with one or two super authorities which will provide all local government services.

The amount of debt and poor assets brought forward could impact the government's decision on whether it opts for a single council for the county, or one of the two double options put forward.

This is perhaps the most contentious and opaque question in the whole saga, and as with anything, it depends on who you speak to.

The ruling minority Liberal Democrat administration, which came in to office last year, lays the fault squarely at its Conservative predecessors.

Speaking at a council meeting, deputy leader Declan Wilson claimed his party was "handed a council which was probably already bust".

Councillor Wilson added he thought the current crisis was "probably the biggest" the city council had faced in its history.

However the Conservative group has said the current administration is not being open about the situation and what caused it.

Gloucester is not in a wholly unusual position. Almost all councils in England say they are facing financial pressures, with some warning they are close to running out of money.

In an open letter, Labour MP for the city Alex McIntyre sent 20 questions to the council's managing director, querying if the council's "wildly overoptimistic" estimates were to blame for the city's financial problems.

On social media he said he was "appalled" by the news, and "disappointed" the council did not raise it with him "as soon as they became aware of the extent of the damage".

"The coming weeks and months are likely to be difficult for our city. If I am honest, I am angry about the chaos and anxiety this news will cause," he added.

In a Facebook post, former Conservative MP for the city Richard Graham, who was voted out in 2024, said the "city council should focus on a survival package that it really needs in the short-term, and not a penny more".

Speaking in a council meeting last week, councillor Hilton said: "I never thought it would get as bad as this.

"It's a shock we've got to this point."

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