UK Government Introduces New Powers to Curb Risky Local Authority Borrowing

On 28 May 2026 the Ministry of Housing, Communities & Local Government announced activation of existing powers to stop councils from taking on “excessive” borrowing, making risky investments, or otherwise making poor financial decisions. Councils will be required to submit detailed data on investments, debt and revenue, enabling central officials to detect financial risk early and intervene before a crisis. A public consultation on the design of these powers opened the same day.

Government plans action over ‘risky investments’Councils to be prevented from making risky investmentsGovernment tightens oversight on council borrowing to prevent financial crises

Woking Borough Council built a debt pile of more than £2 billion—about 100 times its annual budget—while Thurrock Council accrued £1.5 billion of borrowing linked to failed commercial projects. Both authorities have since curbed further borrowing, but their experience has heightened sector-wide concerns, especially after several councils issued section 114 notices following pandemic-driven spending pressures.

Councils to be prevented from making risky investments

• Woking Borough Council debt: >£2 billion.

Councils to be prevented from making risky investments

• Thurrock Council debt: £1.5 billion.

Councils to be prevented from making risky investments

• £78 billion earmarked in the Fair Funding Review for multi-year settlements, the first such package in a decade.

Government tightens oversight on council borrowing to prevent financial crises

The government argues tighter oversight will protect taxpayers from the cost of failed ventures and unsustainable debt. Finance leaders, however, warn that more intrusive controls could dampen councils’ willingness to pursue commercial investment and borrowing-led growth, potentially limiting service innovation.

Government tightens oversight on council borrowing to prevent financial crises

Local Government Minister Alison McGovern said the state cannot wait for councils to reach the brink of collapse before acting. The new framework is presented as a means to improve transparency, keep borrowing affordable and sustainable, and provide early-intervention tools. The £78 billion Fair Funding Review commitment is positioned as a parallel effort to stabilise council finances through a multi-year settlement.

Government tightens oversight on council borrowing to prevent financial crises

Sector analysts note that while the aim is to safeguard public money, the shift toward proactive scrutiny may constrain councils’ appetite for commercial projects. Finance directors stress the need to balance prudence with the ability to innovate and meet rising service demand.

Government tightens oversight on council borrowing to prevent financial crises

All sources agree on the debt figures for Woking and Thurrock, but none define the quantitative threshold that will trigger a “excessive” borrowing determination under the new powers.

Councils to be prevented from making risky investments

• “Local Government Minister Alison McGovern said: In Woking, Thurrock, and other councils we’ve seen poor investment decisions leaving taxpayers footing a big bill.” — Alison McGovern, Local Government Minister

Councils to be prevented from making risky investments

• “We can’t afford to wait until a council is on the brink of collapse to act.” — Alison McGovern, Local Government Minister

Councils to be prevented from making risky investments

• “That’s why we want to bring in new powers so we can identify the risks and act before it’s too late.” — Alison McGovern, Local Government Minister

Government tightens oversight on council borrowing to prevent financial crises

• “ The consultation will run from 28 May to 6 August.” — Ministry of Housing, Communities & Local Government

Government plans action over ‘risky investments’

The consultation runs until 6 August 2026. Responses will shape the final design of the oversight metrics and the extent of central intervention, determining how councils balance financial innovation with the new prudential requirements.

Government tightens oversight on council borrowing to prevent financial crises