As they try to avoid bankruptcy, councils are planning to recover a record £1.4bn through the cancellation of investments and the sale of assets.

As they rush to plug the debt black hole before the election, Britain’s councils prepare a record £1.4bn fire sale of assets and cancelled investment.

The government has given 18 councils permission to mothball and sell assets to free up cash. This is in an effort to avoid a new wave of council bankruptcy ahead of the July 4 elections.

Councils can release £1.4bn in total between 2024/25 by selling land and properties, redirecting budgets, delaying spending on maintenance and stopping other projects.

The total amount of money spent in 2018/19 will be 19 times higher, when adjusted for inflation and compared to current prices

According to an analysis by the Institute for Government, since 2023/24 there has been a 58pc increase in use of “capitalisation direction”, a measure that allows councils meet their daily costs using capital resources.

Birmingham Council will be able to release £685m this year after issuing a Section114 notice last year. Since 2020, the council has released £1.26bn of capitalisation funds.

Birmingham Council sold 35 freehold properties at auction, including a former children’s centre and industrial land.

Bradford and Southampton Councils will each be allowed to release £140m (£122m) and £122m (£140m) this year.

In recent years, the Government has increased its use of capitalisation directions. From 2018/19 to 2022/23 the number of local authorities allowed to use resources this way has increased from one to six. The number of councils has tripled in the last two decades, to 18.

Local authorities are struggling with an ever-escalating funding crisis, as demand for services like social care increases. Grant Thornton, an accountancy firm, warned earlier this year that four out of ten local councils were at risk of bankruptcy over the next five-year period.

Rachel Reeves warned that Labour will not bail out councils in bankruptcy after the next election. She told Sky News, “I’m not going to be able fix all of the problems right away,” and she said she would concentrate on reforming planning.

She said: “I am not under any illusions about the magnitude of the challenges I will inherit, if I became chancellor this year. I must be honest.”

“My main focus is to reform the planning system in order to get Britain back building… We will increase our tax revenues and be able invest again in public services if we do these things. There are no shortcuts. “That’s the way.”

Stuart Hoddinott, senior researcher at IFG, warned that short-term solutions will only make the crisis worse.

Hoddinott stated: “It is a quieter, more discreet way to support local authorities. It doesn’t get as much attention as a local council going bankrupt.” Not to be too cynical but the government’s decision to increase the use of financial assistance may be an attempt to avoid section 114 notices.

M. Hoddinott said that if the government had not used more exceptional financial assistance, it is likely that many councils would have declared themselves insolvent.

He said, “But this is not a viable solution.” You can’t sell a building more than once. But your pressures continue.

Analysts warn that councils are selling office buildings at the worst time possible, because the shift from homeworking to post-pandemic work has depressed the prices.

Matthew Oakeshott said, “At this time, what we see in the market – which we recognize as council sales – tends to be higher quality properties that still have tenants. The properties have lost a great deal of money but are still saleable.

“They’re selling retail warehouses and grocery stores, but this is just the tip of the Iceberg.

You can’t give anything away. We are firstly seeing the higher quality items being sold at a loss.

Mat Oakley is the director of commercial research for Savills. He warns that fire sales will push more councils to bankruptcy as they will lose out on money and lose important sources of income.

Mr Oakley stated: “By selling it, the income you receive from it is gone, they are no more solvent, and have to enter the equivalent of bankruptcy in the council.”