1 
 
IMPASSE OR MUTATION? AUSTERITY AND (DE)FINANCIALISATION OF LOCAL GOVERNMENTS IN 
BRITAIN  
 
Abstract: Post crisis, local governments’ budgets have been drastically cut in Britain.  Similar budgetary 
strains had serious consequences in the past, leading to major restructuring in local governments’ 
functions. This paper interrogates the spatial dynamics of short-term municipal finances by putting into 
dialogue the political economy perspectives on financialisation with the economic geography literature 
on urban governance. Using data for over four hundred municipal authorities in Britain, we examine 
locational underpinnings of changing financial practices with respect to spending cuts. We find that 
austerity increased risk and uncertainty for local governments, leading them to resort to short-term 
borrowing for current spending to preserve key services in breach of regulatory guidance. Effectively, 
an internal market for inter-council lending and borrowing has been created based on market principles 
in which local governments with surplus cash and reserves have extended credit to those with liquidity 
problems. On the asset side, the austerity programme forced them to embrace financial logics through 
a spectacular shift from cash and deposit holdings to investment in money market funds and credit 
extension as they have strived to generate as much income as possible to fund services at risk.   
 
Introduction  
The austerity programme in the wake of the 2008 financial crisis involved deep cuts to public sector 
budgets in Britain (Lobao et al. 2018). By 2016, local budgets had been more than halved in real terms 
(Gray and Barford 2018; IFS 2018). A disproportionately large amount of budget cuts has been imposed 
on local governments (LGs), resulting in service fallouts and increasing vulnerabilities. Similar measures 
in the past resulted in major restructuring of LGs’ functions through a shift from managerialist to 
entrepreneurial governance after the 1980s (Harvey 1989; Phelps and Miao 2020), increasing 
involvement with financial markets (Weber 2010). Some built up debt while others explored the 
unknown territory of derivatives with serious consequences, including bankruptcy (Tickell 1998; Peck 
and Whiteside 2015; ). Whether the prolonged austerity programme after the 2008 crisis generated 
similar tendencies within LGs is an important question as new financial pressures such as those related 
to Covid-19 emerge (The Guardian, 2020).   
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This paper interrogates the spatial dynamics of LG1 financing under austerity, employing political 
economy literature on financialisation and evolving debates in economic geography. It engages with 
debates on mutations in local governance, such as those described as late entrepreneurialism, austerity 
urbanism and municipalism (Peck 2017b; Cumbers and Paul 2020) in the context of changing financial 
practices of LGs under austerity. Theoretically, one may argue for rollback as well as deepening in 
financialisation. Severe budgetary cuts may have presented financialisation as an opportunity for LGs to 
generate additional cash flow and thus overcome austerity (Torrance 2009). Alternatively, LGs may have 
reduced their services and activities and curbed their involvement in financial markets, effectively de-
financialising in response to austerity. These potential paths are shaped by the degree of LGs’ autonomy 
as well as locational dynamics of economic activities, demographic change, wealth, income and 
deprivations.  
Empirically, the article provides a comparative spatial assessment of (de)financialisation under austerity 
among LGs for the first time at disaggregated levels,  addressing scarcity of evidence at lower spatial 
scales, conceptualised by Christophers (2012) as ‘anaemic geographies of financialisation’. Furthermore, 
this paper is one of the few addressing the dynamics of financialisation inside the state in the context of 
local governments. Finally, unlike the existing studies on state and financialisation which mostly focus 
on long-term borrowing and investment (e.g. infrastructure, property development, city deals and 
urban development), this is the first study focusing on spatial variegation in LGs’ short-term finances 
which are particularly important in the context of austerity.  
The theoretical contribution of the paper lies in showing a mutating LG financial system with variegated 
and sometimes contradictory characteristics, displaying entrepreneurialism with a ‘municipalist’ 
appearance. Overall, we find that the impacts of the austerity programme in Britain cannot be 
characterised as a straightforward case of further financialisation although it had profound effects on 
the financial management practices of LGs. Underpinning this mutation is an environment of risk and 
uncertainty which the spending cuts and other austerity measures have created for LGs. Consequently, 
the new modus operandi has required LGs to become risk managers in addition to their existing 
functions. Methodologically, spatial contours of this process have been examined with a focus on two 
questions, paying attention to the conjunctural nature of developments (Peck, 2017). The first is how 
(de)financialisation has been institutionalised under austerity through changes in the rules and 
regulations. Where LGs have limited autonomy in terms of rule-making and tax collection, the level of 
(de)financialisation is likely to be dependent on the policies made by the centre. The second concerns 
                                                          
1 ‘Local governments’ has been used as a general term here for a wide range of local or municipal authorities in 
Britain, ranging from unitary authorities, metropolitan districts and boroughs to non-metropolitan county and 
district councils with different size, mandate and coverage as explained in the forthcoming sections.   
3 
 
the forms and manifestations of (de)financialisation within local government contexts. Following 
Epstein (2005), we examine whether LGs’ reliance on financial markets and institutions has changed and 
if austerity has had an impact on financial logics with greater or lesser attention to alternative 
investment strategies.  
On the asset side, this is reflected in greater reliance on financial markets and non-traditional 
instruments. Unlike in the previous periods, LGs have moved away from cash and deposits and started 
to use liquid resources for yield, investing them in interest-earning assets such as money market 
instruments to supplement reduced budgets. Predictably, London and the South East account for over 
50 percent of total financial investments. On the liability side, one of the most striking developments is 
related to short-term borrowing (STB), which did not feature prominently in LGs’ balance sheets prior 
to austerity. Remarkably, over ninety percent of total STB across all regions is accounted for by inter-
council borrowing (ICB). This is entirely a post- austerity phenomenon. The emergence of ICB represents 
an internalisation of risks within the LG sector, restricting the exposure to external markets in an 
environment of instability, recession and uncertainty. It would be deceptive, however, to consider this 
as full withdrawal from financial markets (and hence, perhaps a sign of de-financialisation) because 
these transactions are intermediated by market brokers and carry fees and interest charges based on 
market rates. Effectively, LGs have created an internal market for borrowing based on market principles 
without using market finance as a new way of managing financial risks to contain risks to service 
delivery. 
In an international context, the findings raise questions about the possibility of similar trends in Europe. 
For example, existing data indicate that, post crisis, the use of STB has increased amongst the LGs of 
unlikely countries such as Germany and Sweden (Eurostat 2021) where local budgets had already been 
cut back substantially from the late 1990s onwards (Jonung 2018; Keller 2014). The evidence here also 
shows some parallels and divergence with the literature on LGs in the US.  
The article is structured as follows. The next section reviews the relevant literature followed by a 
discussion of the methods and data used. Section 4 outlines the context of the empirical study, 
emphasising the impacts of spending cuts and changes in the rules and regulations that have shaped 
financial practices among LGs. Section 5 demonstrates the spatial dynamics of the financial 
management strategies of LGs followed by a discussion and conclusions.  
 
 
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(De)financialisation in the context of local governments   
Crises present risks and opportunities for change as reflected by the shift in modes of local governance 
in the 1980s and 1990s. Inspired by Harvey (1989), a series of studies in economic geography showed 
how spatial governance characterised by ‘managerialism’ with planned, coordinated, redistributive 
modes of service delivery was transformed into ‘entrepreneurialism’, driven by competition and 
marketisation especially through various forms of contractual relationships with the private sector (Van 
Loon, Oosterlynck, and Aalbers 2019; Davidson and Ward 2014; Phelps and Miao 2020). The views on 
the localised repercussions of the 2008 crisis have been less uniform. Recent theoretical developments 
highlight mutations in local governance systems in response to austerity.  Some scholars saw a tendency 
towards municipalisation with increasing reversals in privatisation and marketisation of local services 
(Thompson 2020; Cumbers and Becker 2018). Others observed diversity of experiences, agency and 
pragmatism, combining marketisation with reversals in contracting-out services in response to fiscal 
distress (Kim and Warner 2020; Aldag, Kim, and Warner 2019).  
Yet other researchers characterised post-crisis mutation as ‘austerity urbanism’: a continuation of 
neoliberal spatial governance, succeeding decades of private sector/market focused speculative 
investment and indebtedness in pursuit of race-to-the-bottom competitive growth strategies, 
eventually called out by the 2008 crisis (Davidson and Ward 2014). In the case of the US cities, Peck 
(2017a, 2017b) argued that growth seeking entrepreneurialism and urban innovation of the 1990s lost 
momentum and saturated with ‘repetitive emulation’ as more and more cities followed similar 
strategies of competitive undercutting to sustain growth. Austerity urbanism in this view reflects a 
mutation into ‘late entrepreneurial’ stage in which growth imperatives cease to exist due to systemic 
distress in urban centres, resulting from overextension and debt-driven growth. Instead, cities embark 
on cutting costs and shrinking their size. Prior to the crisis, growth-seeking entrepreneurialism was weak 
among British LGs. This is largely because local development patterns in Britain are dependent on a 
highly centralised funding structure and limited LG autonomy (Wilson and Game 2011). The primary 
motivation for privatisation of various sorts, including private finance initiatives, were based on cost and 
efficiency rhetoric rather than US-style entrepreneurial growth orientations. Hence, debt- driven growth 
was not as extensive amongst British municipalities as in the US states. Austerity measures, imposed by 
the centre through reduced transfers (Hastings et al. 2017; Gray and Barford 2018), have led to 
emergence of such entrepreneurialism amongst LGs in post-crisis Britain (O’Brien and Pike 2019; 
Beswick and Penny 2018).  
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An important dimension of these debates emphasised the role of finance and financalisation2 for local 
development as exemplified by Chicago (Weber 2010) and the bankruptcy of Detroit and Atlantic City 
(Peck, 2016; 2017b).3 Financialisation is most often defined as “the increasing role of financial motives, 
financial markets, financial actors and financial institutions in the operations of the domestic and 
international economies” (Epstein 2005, p. 3), while definancialisation describes the process of reigning 
in this increased role (Sawyer 2017; Ban and Bohle 2020). In the context of public policy and the state, 
the phenomenon has been conceptualised as “the changed relationship between the state, understood 
as sovereign with duties and accountable towards its citizens, and financial markets and practices, in 
ways that can diminish those duties and reduce accountability” (Karwowski 2019). Empirical studies 
have shown that it can be either fostered or constrained depending on production patterns (),  
organizational structure, consumption culture, regulation and state interest (Keenan 2020; Trampusch 
and Fastenrath 2019; Ban and Bohle 2020).  
For this article, further qualification on the relationship between states and financialisation is necessary. 
First, the research agenda associated with financialisation has its roots in the study of the changing 
behaviour of corporations and everyday lives of individuals with limited reference to the role of the 
state other than perhaps a general reference to the neo-liberal transition and cultural political economy 
(Lazonick and O'Sullivan 2000; Epstein 2005; Krippner 2005). Second, much of the literature on state-
financialisation nexus emerged after the crisis. This connection has been initially analysed with an 
emphasis on the role of the state in facilitating financialisation of the corporate sector and wider 
economy through legislation and policy rather than financialisation of states’ own activities. Most 
prominent interventions were related to financial deregulation and minimisation of the welfare state 
(Dowling 2017), giving rise to the explosion in mortgage debt as a form of asset-based welfare (Finlayson 
2009; Montgomerie and Büdenbender 2015) and credit card debt as a form of welfare for subsistence 
(Soederberg 2014, Dagdeviren et al. 2020) in an environment of greater individual insecurity (Langley 
2009; Lazzarato 2009; ). Third, despite interdependences, financialisation of states’ own activities is 
radically different than financialisation of the wider economy. While a series of studies inspired by 
Hardie (2011) examined sovereign debt management as a way of enhancing the depth and reach of 
financial markets (Livne and Yonay 2016; Fastenrath, Schwan, and Trampusch 2017), very few studies 
have recognised the distinction between financialisation through and within the state with (Karwowski 
                                                          
2 See Mader, Mertens, and van der Zwan (2020) for a more systematic comparison of different forms of 
conceptualisations.  
3 In the US, LGs can file for bankruptcy ( Yang 2018) while in Britain there is no legal provision for municipal 
bankruptcy although the term is used in the media to indicate expenditures exceeding revenues. Hence, councils 
issuing a Section 114 notice, declaring deficit are often reported as bankrupt.   
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2019) and Wang (2015) being the exception. In the context of sovereign debt, an explicit expounding on 
this distinction has only been made by Schwan, Trampusch, and Fastenrath (2020) .  
In contrast, economic geographers view financialisation as a new form of urban entrepreneurialism and 
hence not only a means but also an end in itself (He 2020). Spatial dynamics of financialisation have 
been discussed with respect to political scales (Christophers 2015; French, Leyshon, and Thrift 2009),  
the  importance of regulatory geographies (Lee et al. 2009), regularisation of fringe finance in widening 
the net for the financial industry (Aitken 2010), spatial polarisation through financialisation (Walks 2014, 
2016) and local origins of the global financial crisis (Martin 2011).  Research on urban development and 
local governance has been more prolific in demonstrating financialisation within states. For the US, Peck 
(2012) argued that rising land and property prices turned investment on the local level into attractive 
prospects for a wide range of investors, seeking higher yield in an environment of low interest rates and 
savings glut during the decade before the 2008 crisis. Private interests were then matched by changes 
in local governance structures, most notably by resource / funding constraints and the ensuing cultural 
change encapsulated in the notion of ‘growth seeking’ entrepreneurialism, which eventually led to  the 
explosion of municipal debt through the collateralisation of infrastructural assets inherited from the 
Keynesian period (Peck 2014).  Financialised practices of LGs are mostly discussed in relation to 
investment in public infrastructure, with the exception of Peck and Whiteside (2016). In the US, these 
were exemplified by the extensive use of tax increment financing (TIF) (Weber 2010). The 2008 crisis 
did not only burst the bubble for the wider economy but also for the financialised entrepreneurialism 
of state governments as epitomised by  the large number of municipal bankruptcies (Kirkpatrick 2016).  
There are indications in the literature that entrepreneurial mutation with some level of financialisation 
may be taking off post austerity at least in some British cities with respect to infrastructure and 
regeneration programmes. This is facilitated by new instruments such as TIF (Strickland 2013) and city 
deals which came onto the menu of LGs after austerity, transforming public infrastructure into 
international assets for investment (O’Brien and Pike 2019). Similar financialised deals also prevail in 
commercial property development with private partners (Christophers 2019; Beswick and Penny 2018). 
More significant is the use of LOBO loans with an estimated value of  around 15 billion pounds in 2015 
(UK-Parliament 2015). Prior to the 2008 crisis, these instruments initially offered lower interest rates for 
periodic revision with the expectation of future increases in benchmark rates such as LIBOR.  Some local 
authorities such as Newham Council, a widely reported case, only started using LOBO loans after the 
crisis under austerity. Given the documented manipulation of the LIBOR by major LOBO providers these 
instruments have put many LGs in difficult positions (Ashton and Christophers 2015). 
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Research on the state-financialisation nexus has primarily focused on long-term financial transactions 
and, to our knowledge, LGs’ activities with a focus on short-term finances have not been investigated 
so far. Examining this particular dimension is important under the conditions of austerity since stringent 
budgetary positions may have forced LGs to focus on day-to-day operations rather than longer-term 
development plans. In the following sections, three aspects of ‘change’ have been emphasised as an 
empirical strategy to investigate the role of austerity for a potential mutation with respect to 
financialisation within British LG sector. First, we examine ‘new forms’ of (de) financialisation, affecting 
economic activities and financial transactions of LGs with a focus on short-term financial management 
under austerity, paying attention to how reliance on financial markets has changed and financial logics 
are affected.  
Second, changing regulations under austerity can help in explaining the institutionalisation of 
(de)financialisation at local level.  In the past, deregulation of financial markets, reflected for example 
by legislative changes, played an important role for the financialisation of the corporate sector (Krippner 
2011; Oren and Blyth 2019). Financial practices of states have also been affected by institutional 
arrangements. These include the financial reforms of the 1980s in Britain (the so-called Big Bang) (Dutta 
2018), the establishment of Debt Management Offices in OECD countries, changes to operational rules, 
requiring employment of professional debt managers in Europe (Fastenrath, Schwan, and Trampusch 
2017), and the encouragement of innovative financial techniques by the European Monetary Union 
(Lagna 2016). Third, spatial variations in the patterns of (de)financialisation at local level are investigated 
for the first time here based on balance-sheet data for over 400 LGs. This is particularly important given 
the well-justified criticism about scarcity of evidence at disaggregated geographical scales, encapsulated 
in the notion of ‘anaemic geographies of financialisation’ aimed at political economy studies in this area 
(Christophers 2012).   
Data and methods  
This study uses a conjunctural method of analysis, an emerging area in economic geography. The 
foundational pillars of this approach can be found in two sources. First, Peck (2012), inspired by Hall and 
Massey (2010), explicitly problematised relative positions among cities for insight into uneven 
development and multiscalar relations on the urban level. Second, Cumbers and Paul (2020) 
incorporated the views of Hall (1988) with Gramsci to distinguish ‘occasional, immediate, almost 
accidental’ change from more permanent and organic change (p.9). Two critical features of conjunctural 
analysis are relevant here. One is related to temporal specificity in which change in the form of 
‘significant transitions’ takes precedence (Hall and Massey 2010). Temporal specificity in conjuncture 
implies not only fluidity in the way things unfold but also potential for significant diversion from the 
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past. The other is related to what Peck (2017a) calls contextual, positional and situational specificity, 
allowing for divergent outcomes.  
The 2008 crisis and the austerity programme should be viewed as a unique conjuncture in which the 
drastic spending cuts have not only limited the means of funding for local services but also created 
substantial uncertainties with respect to LGs’ ability to finance them in future. Such periods bear the 
potential for radical changes as well as mutations in existing forms of spatial governance. Hence, 
austerity policies may have forced a change of culture, enhanced financial logics and changed the 
financial practices of LGs. We examine how the austerity programme interacted with financialised 
practices of LGs in Britain using a conjunctural approach in this sense.  
The contextual and situational factors are highlighted with respect to budgetary cuts and the 
institutional basis of financialisation. The changing regulatory rules and policies which may have 
influenced conformance with or divergence from past trends have been examined. Positional specificity 
requires attention to the spatial contours of the impact of austerity on financial practices amongst LGs. 
Hence, the extent of spatial concentration of short-term financial debt and investment across LGs has 
been assessed starting with national scale, moving down to regions and lower level administrative 
divisions, covering over 400 municipal authorities in the country. Temporal specificity is captured by 
establishing overall trends in short-term financial positions prior to the crisis and the extent of 
divergence post austerity.  
The forms and manifestations of greater (de)financialisation, if any, are investigated focusing on the 
changes in the balance sheets of LGs to detect any tendency for greater reliance on financial markets as 
predicted by financialisation theories (Epstein 2005; Krippner 2005) although in this case as a 
consequence of austerity and shortfalls in transfers from central government. Changes in the reliance 
on financial markets has been examined on the basis of a) changes in the stocks of short-term debt and 
investment, b) origins and destinations of short-term flows, i.e. where they have been borrowed from 
(private sources, LGs, the state) and which assets and sectors they have been invested in. Attention has 
been paid to the changes in LGs’ financial management practices to the extent that they may signify a 
cultural change, encapsulated in the notion of ‘financial logics’ (Langley 2009; Lazzarato 2013). Distinct 
elements of short-term financial positions are scrutinised to identify any evidence of non-conventional 
sources of funding and financial investment.  
The research underpinning this article is based on mixed methods, making use of quantitative as well as 
qualitative data. Studying balance sheets is crucial for research on financialisation of LGs to explore the 
shifts in the means and composition of funding. Hence, we used local government balance sheet data 
from Eurostat, going back to 2006 and the Ministry of Housing, Communities & Local Government 
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(MHCLG) data on LG finances, covering over 400 local authorities with varying level of detail over time. 
Note that much of LG data are unaudited and subject to revision. Spatial distribution and analysis of 
short-term assets and liabilities have been mapped using ArcGIS 10.6 software. Mapping by local 
authority districts is based on UK boundary data for 2019 (ONS 2019).   
The data analysis is complemented through semi-structured interviews with senior finance managers in 
ten single-tier LGs, responsible for all statutory municipal services. Preliminary reviews and data analysis 
were used to identify selection criteria which in addition to locational diversity aimed to ensure that the 
sample was sufficiently mixed to gain insights about LGs with diverse conditions. The selection criteria 
required the inclusion of a) both richer LGs with a thriving business base and poorer, financially more 
stretched authorities with heavy demand on their services, b) central city councils as well as peripheral 
municipalities and c) LGs controlled by different political parties. Some of the interview participants 
responded positively to our direct contact. Others were recruited through the help of key informants 
who had already taken part in the study. The research project went through the ethical approval process 
at University of Hertfordshire prior to the interviews and was approved on the basis that participation 
was voluntary, anonymous and confidential. Interviews took place between May and October 2019. 
Each interview lasted for around an hour (57-76 minutes), was audio recorded and later verbatim 
transcribed. References to the interviews below have been anonymised by coding them from LG1 to 
LG10.  
The context: budget cuts and changes to the rules of the game  
The structure and financing of LGs in Britain 
The contemporary structure and mandate of LGs in Britain reflects the chaotic nature of their evolution 
over centuries with the multitude of LGs operating at different levels, ranging from historical entities of 
parishes to more modern varieties of city or metropolitan councils (King 2006). In England, unitary 
authorities (over 100 large towns), metropolitan district councils (highly urbanised 36 cities such as 
Liverpool, Sheffield, Leeds and Birmingham) and London boroughs (33) are individually responsible for 
all statutory LG services.4 Other localities mostly have a two-tiered structure with 27 county councils 
being responsible for services such as education, social care, highways, passenger transport, waste 
disposal while 201 non-metropolitan district councils delivering more local services such as leisure, 
housing, waste collection and local tax collection (LGG 2010). Outside England, Labour’s devolution 
programme (1997-1998) shaped the LG structures and transferred significant powers to the Scottish 
                                                          
4 Since 2009, larger LGs in close proximity have also been able to create combined authorities to pool resources 
and reduce costs (LGA 2020). 
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Parliament and the Assemblies in Northern Ireland and Wales albeit with limited tax raising authority 
(MacKinnon 2015). In terms of mandates, Scottish and Welsh councils are organised as unitary 
authorities with similar responsibilities to those in England.5  
LGs have had their golden age until the 1960s when they had greater autonomy and reliance on locally 
raised finances while from the 1980s onwards, the so called ‘new public management’ reforms radically 
changed LG financing (Wilson and Game 2011). Since then, under conservative and labour governments, 
the modes of service delivery increasingly involved various forms of public-private partnerships and 
Private Finance Initiative (PFI), bringing a range of contractual relationships into housing, planning, 
building operation of facilities, waste collection and social care (Taylor, Haynes, and Darking 2020; 
Tomaney and Colomb 2018). Paradoxically, there is consensus that LG reforms after the 1970s have 
increasingly restricted LGs’ financial autonomy and increased their dependence on central government 
funding despite the rhetorical emphasis on decentralisation and devolution (Ferry and Murphy 2018; 
King 2006). Greater involvement of private actors in development and service delivery meant that the 
composition of LG balance sheets increasingly shifted from capital to current expenditure (Wilson and 
Game 2011). Currently, LG financing is broadly similar across the three countries in Britain: grants, 
domestic property (council tax) and non-domestic property (business rates) taxes, housing revenues 
and other fees and charges constitute key revenue sources. Devolved authorities in Scotland and Wales 
receive block grants from the central government to fund their activities and disburse these to LGs in 
their territories (King 2006). They have autonomy in determining property taxes and other charges. 
English LGs receive general, ring-fenced and capital grants from Westminster to fund a significant 
proportion of spending. Domestic and non-domestic property taxes are raised locally (see Online 
Appendix Table 1 for details). The latter is redistributed by the central government, taking account of 
size, deprivations and needs of individual authorities (Adam, Emmerson, and Kenley 2007).  
Austerity, service risks and the new wave of restructuring  
The long-term funding of LGs remains deeply contractionary in Britain, especially for Scotland, followed 
by England and Wales (see Online Appendix Table 1). In England, in addition to the cuts in direct 
transfers, revenues from retained or redistributed business rates have declined significantly. There is 
evidence that more deprived localities saw greater cuts, resulting in the deepening of their deprivations 
(Hastings et al. 2015; IFS 2018). The greatest proportion of cost containment at the local level came 
from so-called ‘efficiency savings’ in back-office operations (Hastings et al. 2015; Christophers 2019) 
                                                          
5 Northern Ireland assembly was suspended during 2002-2007 and 2017-2020 when power reverted to 
Westminster with continuing conflict between the Unionist and Republicans (Sargeant and Rutter 2019). Services 
such as education, transport, housing, social services and urban development are delivered by departments rather 
than LGs, making a meaningful comparative analysis of LGs in Northern Ireland with other parts of Britain difficult.   
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followed by the reversal of outsourcing and procurement, introduction of charges for previously ‘free 
at the point of delivery’ services or selling assets and property (Gardner 2017). 
Our fieldwork in 2019 confirmed the profound impacts of austerity on local finances. Key informants 
told us cost-cutting measures to protect frontline services such as social care included reorganisation of 
back office functions, staff redundancies, reducing office-space, leasing surplus buildings and cost-
saving investments in digital systems. The greater challenge for councils is that funding cuts have 
continued a decade after the first wave of austerity measures and are likely to persist due to COVID-19 
pressures. At the time of our interviews, most of the senior managers were still under pressure ‘to find 
extra savings’, ranging between 10 and 70 million pounds per authority in the next three to four years. 
While the councils have been praised by insiders [LG6, LG10] and outsiders (Hastings et al. 2015; 
Christophers 2019) how remarkable they have been in managing the cuts and protecting services, they 
are now at a point where  frontline services are at risk [LG2].  
…[initially] there probably was quite a bit of fat to cut…I think the last three or four years, 
we’re seeing a lot more demand management and stopping doing things and that really 
wasn’t happening the first few years…and compared to fifteen/twenty years ago the 
sector is much leaner than it was. But that can only go on for so long and then there will 
be major risks as in Northamptonshire or in services such as children’s or adults that 
they then have to throw lots of money at [LG10] 
Financial pressures have turned into acute service risks, especially, regarding housing, homelessness 
and spending on temporary accommodation (LG1, LG2, LG5, LG7), adult and children social care, schools 
and special needs (LG3, LG6). The full extent of these risks can be concealed, and impacts may be difficult 
to quantify. The vagueness associated with the term ‘statutory services’, which is open to interpretation 
(e.g. care with and without residential support), has been used to incrementally cut entitlements and 
change threshold service level [LG7]. Indeed, a respondent from LG9 admitted that cuts in ring-fenced 
grants for Children’s and Adult Services meant that their scope is reduced although the impact is 
probably not felt yet as there is often a lag between implementation and outcome. The Covid-19 crisis 
has pushed LGs into further financial strain and might become a pretext for the non-restoration of 
funding and service levels in the foreseeable future.   
While it may be too early to reach a conclusion with respect to a potential mutation in the LG financing 
regime, the long-term nature of cuts, lack of prospects for a change in the near future and further 
challenges posed by the pandemic suggest the financial circumstances of local authorities have 
increasingly been normalised beyond being merely  an impasse.   
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Changes in financial regulations under austerity 
As the LG system in Britain is highly centralised, the degree of (de)financialisation at local level is, to 
some extent, a dependent process. The socio-economic context of the regions determines how 
regulations take effect in different geographies. For example, prior to the crisis, the introduction of the 
Prudential Borrowing Code with the Local Government Act 2003 led to a significant rise in debt. This 
was largely accounted for by metropolitan rather than non-metropolitan districts (DCLG 2007). The  Act 
also allowed LGs to establish for-profit companies (Christophers 2019). By 2016, there were around 600 
LG companies  (Ferry et al. 2018). While this does not constitute financialisation per se, it has facilitated 
greater engagement with financial markets especially for property development.  
The austerity programme brought about further changes to ‘the rules of the game’ and embedded a 
greater tendency for enhanced financial logics amongst LGs, especially, with respect to capital financing.  
The introduction of TIFs in 2010 has become a mechanism to expand the credit restrictions on LGs to 
borrow against expected future growth in revenue (Sandford (2020). The 2011 Localism Act under the 
austerity programme led to New Development Deals, City Deals and Earn-back Gain-share Investment 
Funds in 2012 primarily to relax borrowing restrictions for regeneration schemes in certain regions to  
increase growth, employment, generate future savings and reduce welfare dependency (O’Brien and 
Pike 2015), potentially paving the way for US style entrepreneurialism among LGs. These changes, 
compounded by funding cuts, resulted in the growth of municipal borrowing from around 13 percent in 
2005-2006 to over 40 percent of capital financing in recent years (Sandford 2020).  
In terms of short-term finances, the austerity programme created an extraordinary uncertainty for LGs. 
Especially concerning has been the ongoing reform to business rates, a key income source for LGs.6 The 
related uncertainty is explained by a key informant from LG4 “…we are not sure exactly what the final 
version of business rates retention will look like”. The rhetoric has been that the business rate reform 
would provide greater autonomy to LGs. In reality, it has shifted the risks, previously carried by the 
central government, onto the local level:  “whereas before Central Government funding, to some extent, 
was a buffer between the local authority and global economics […] we're now […] in touch with it” (LG4). 
Furthermore, the risks and uncertainty created by austerity have pushed LGs to take a more near-term 
or short-sighted view, dealing a blow to their ability to plan in advance:  
“[…]because everything is now so tight, the margin for error, you know, you can only be 
a little bit out on your estimate of, you know, adult social care if you're only 1% out, you 
                                                          
6 Prior to 2013, locally collected business rate revenues have been redistributed to LGs by the centre. From April 
2013, English LGs were entitled to retain half of the volume of business rates they collected. 
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can't afford it because you're running down your reserves. So, however carefully you've 
managed your reserves, you're in a risky situation” (LG4).  
“…what we’d want is to be able to plan…some things we’re trying to do, they’ve got 
lead-in times so you want to plan to do things over three or four years” (LG5).  
The introduction of new ways of financing capital expenditure through, for example, TIFs and city deals, 
driven by debt-based growth and regeneration, suggest that post austerity local development dynamics, 
in large cities show resemblance to the pre-crisis picture of entrepreneurial and growth seeking urban 
centres in the US. The discussion of short-term finances points to the creation of greater uncertainty, 
funding and service risks as well as risk-shifting from the centre to LGs. A preliminary contemplation 
would suggest these changes do not only signify continuation but further deepening in the dynamics of 
financing local development, compelling LGs to become risk managers with myopic horizons as 
discussed in the next section.  
From a financial point of view, LGs have dealt with the cuts, policy changes and higher levels of 
uncertainty and related risks brought about by austerity in two ways: through short-term borrowing and 
reserve accumulation combined with savvier management of liquid assets. We discuss these in turn in 
the next section. 
Management of short-term finances under austerity: aspects of (de)financialisation  
Short Term Borrowing (STB) and Inter-council Borrowing (ICB) 
The immediate impact of the crisis is seen in LGs’ liability-to-assets ratio which soared from an average 
of 78 per cent during 1997-2007 to 94 percent during 2008-2010. STB was never a major element in LGs’ 
debt positions prior to the crisis and hardly ever exceeded three percent of total borrowing (Figure 1). 
This trend changed radically under austerity. After an initial contraction (from 1.3 to 0.3 billion pounds 
between 2010 and 2013) resulting from various restructuring measures, STB saw an eight-fold increase 
in real terms when sustaining minimum service levels was no longer feasible through cost cutting.  The 
rise in STB is significant because LGs are supposed to borrow for investment rather than current 
spending7:  
“Unlike central government, local authorities cannot borrow to finance day-to-day 
spending, and so they must either run balanced budgets or draw down reserves – 
                                                          
7 Lack of short-term lending facility by Public Works Loan Board (PWLB) reflects this although there are proposals 
that short-term loans from PWLB could be a permanent solution to LGs’ continuing cash flow problems (LGA 
2020). 
14 
 
money built up by underspending in earlier years– to ensure that their annual 
spending does not exceed their annual revenue.” (Atkins 2020). 
Hence, the explosion of STB reflects the widening gap between grants plus revenues and spending needs 
under austerity. Intriguingly, the composition of STB has been fundamentally transformed. Whereas 
prior to the 2008 crisis, LGs mostly relied on private creditors (especially banks), under austerity, the 
share of private sources8 in total STB plummeted from around 93 percent in 2006 to 5 percent in 2019 
(Figure 1).Remarkably, borrowing from financial markets has increasingly been replaced by inter-council 
borrowing (ICB) as reflected by the inverse relationship between the shares of ICB and the private 
borrowing sources.9 The rise in ICB is purely a post austerity innovation. This growing tendency may be 
interpreted as a withdrawal from financial markets and a form of de-financialisation or a ‘municipalist’ 
innovation similar to those observed in the recent literature (Cumbers and Becker 2018; Thompson 
2020). The reality, however, is more complex. While the cuts and revenue shortfalls have driven the 
growth of STB, the sway from private to inter-council borrowing has been essentially a risk containment 
strategy. Especially in the first few years after the crisis, banks and building societies were exposed to 
or directly implicated in highly risky undertakings. Some were victim of interest rate manipulation 
(Ashton and Christophers 2015) which later led numerous LGs bringing lawsuits against bank charges 
applied on LG borrowing (Sharman 2018). Thus, LGs considered private finance for revenue spending 
too risky in a setting where significant vulnerabilities were experienced with certain financial 
transactions in the past (e.g. the derivatives debacle of the 1980s and the build-up of LOBO loans). 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                          
8 Private sources of borrowing include, banks, building societies, other financial intermediaries and private non-
financial corporations (MHCLG, 2020 #408).   
9 While borrowing from private sources appears to have collapsed in 2013, the reality is that ICB exploded from 
virtually nil until 2011 to 9.5 billion pounds (94 percent of total STB) in 2019, dwarfing the share of private 
borrowing in total STB.  
15 
 
Figure 1. Shares of STB & ICB in total British local government borrowing (%) 
    Source: DCLG (2012, 2015), MHCLG (2021) 
 
LGs have been compelled to borrow from each other to relieve liquidity bottlenecks when Eric Pickles 
(the responsible minister at the time) refused calls for greater funding on the grounds that LGs were 
piling up reserves (Curtis 2010). As cash shortages and reserves lied in different local authorities, a 
process of recirculation in the form of ICB started from LGs with surpluses to those with deficits. Hence, 
the guidelines against borrowing for revenue spending have effectively been breached. LGs have 
essentially created an internal market and internalised potential risks associated with the rise of STB in 
an environment of financial and economic instability. Nevertheless, the conduct of ICB has been 
informed by financial logics, facilitated by private brokers for a fee and carried interest rates (even if 
below the commercial rates). Growing use of ICB has been a means of managing public finance risks 
without exposure to private or external finance risks through pooling and recirculating reserves in an 
environment with explicit guidelines against borrowing for revenue spending.  
Focusing on disaggregate trends in the spatial distribution of STB (Figure 2 and Online Appendix Table 
1) several observations emerge. First, the use of STB has been relatively widespread across Britain, as 
reflected by the incidence data. A larger proportion of LGs in Scotland has resorted to STB. In every 
region without exception, the composition of STB has been heavily in favour of ICB, accounting for over 
90 percent of total STB (compare centre and right-hand maps in Figure 2) with some unevenness in its 
distribution. LGs in England have been net lenders while those in Scotland have been the biggest 
borrowers (Online Appendix Figure 1). Second, this spatial variation is directly related to the differential 
impacts of austerity. Scotland saw the greatest contraction in revenue grants in comparison to England 
and Wales which explains higher incidence and amounts of STB (Online Appendix Table 1). Dismal 
economic growth during 2009-2019 further compounded the effects of cuts as reflected by the 
0
1
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3
4
5
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7
8
9
10
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Share of ICB in total STB (left axis) Share of private sector in total STB (left axis)
Share of STB in total borrowing (right axis)
16 
 
remarkable contraction of business rate revenue in England and its meagre growth in Scotland (0.4% 
per annum) and Wales (0.02% per annum). In all parts, increases in council tax revenue were far too 
small to counterbalance the shortfalls in grants and business rate income.10   
Third, inter-council credit and debt stock are highly concentrated. Incidence of STB is much higher 
amongst larger towns and cities organised as metropolitan districts and unitary authorities in 
comparison to smaller, less urbanised non-metropolitan councils. In England, a north-south divide 
seems to exist with a greater proportion of LGs in the North East, Yorkshire and North West using STB, 
reflecting the harder impacts of austerity on the North.  In terms of the amounts borrowed, unlike Welsh 
councils with lower than 80 million STB in all instances, big city councils such as Aberdeen, Edinburg, 
and Glasgow in Scotland borrowed between 100 to 500 hundred million (Maps in Figure 2). In England, 
three prominent nodes are revealed: a cluster of LGs in London, around Manchester and Birmingham. 
The situation in the North West has been especially severe with Lancashire, leading the way with half a 
billion STB. The region accounted for around one-fifth of total STB in Britain in the earlier phase of 
austerity, as opposed to, say, London and the South East with limited STB needs. While LGs in London 
overall have been net lenders, there is an inner-outer London divide with the LGs in the former providing 
credit to the rest of the country while those in the latter being net borrowers. 
Fourth, LGs’ scope of responsibilities matters for locational dynamics of STB. Non-metropolitan district 
councils without any responsibility for education, social care and infrastructure development (a large 
expenditure category) are less prone to STB. However, the relative significance of borrowed amounts, 
expressed in proportion to business rate income is highest for non-metropolitan district councils11  
representing less urbanised smaller towns with narrower revenue base. Fifth, the unevenness in the 
distribution of STB also reflects the interaction of austerity measures with growth and revenue 
generation dynamics and the service mandate of LGs (Online Appendix Table 1). Thus, the relative 
significance of STB was lowest amongst London boroughs which experienced the lowest contraction 
both in transfers from the central government and the retained business rate revenues. In contrast, STB 
amongst unitary authorities and metropolitan councils, catering for larger towns and cities outside 
London with greatest municipal responsibilities, was high not only because they faced greater cuts in 
grants but also saw greater decline in business rate income.12 For non-metropolitan councils, the low 
                                                          
10 A fourth revenue source is fees and charges which are discretionary and vary over time and across LGs. Thus, 
tracing them over time is more difficult than other major revenue items.  
11 Comparative significance of STB can be measured in proportion to expenditure, grants or revenue sources. 
Here, we reported relative size of STB against retained / redistributed business rate income. Whichever 
denominator is used, relative results are similar across regions and type of authorities.  
12 Different business rate schemes were implemented across England after the crisis, involving both retention 
and redistribution. Here, we report business rate income irrespective of how it enters LGs’ budget. 
17 
 
growth in council tax revenues and high contraction in business rate income, in addition to a sizable cut 
(31%) in transfers are likely factors behind their comparatively higher STB burden. 
Finally, spatial differences have partly depended on financial strategies and risk-taking attitudes of 
individual LGs. For example, Spelthorne, Thurrock, Plymouth and Croydon councils have taken greater 
risks with respect to commercial property or other types of re-generational investments. Revenue 
spending is not entirely independent of capital expenditure as unitary charges associated with PFI and 
debt-service payments on borrowing come out of revenues.13 Thus, Croydon issued a Section 114 notice, 
indicating inability to balance books while Plymouth council took a swap deal to hedge itself against 
potential increases in interest rates (Ford 2020; Stubbington 2020).
                                                          
13 In 2019, such items constituted 5% of net current spending in England.    
18 
 
 
 
 
 
 Scotland Wales England East EMids S West WMids London S East N West Y-shire N East 
Incidence of STB (% LGs with STB) 71.9 59.0 41.2 36.5 26. 7 40.5 33.3 52. 8 41. 9 46.4 45.5 66.7 
Shares in total STB amount in Britain 16.2 4.6 79.2 14.5 22. 8 5.1 6.8 9.2 16.9 13.8 8.3 2.5 
Figure 2. Short-term debt stock by British local governments: 2018-2019 (in thousands of £) 
19 
 
 
Financial investments of LGs under austerity 
The roll-out of austerity measures in 2011 triggered various forms of restructuring programmes. The 
immediate impact of the crisis was on cash and reserves which shrunk by about one-third between 2008 
and 2010. In terms of financial management, the asset-side response to policy changes and uncertainty 
were two-fold. First, they have built pockets of cash or near cash assets for (un)expected spending, in 
addition to general and ring-fenced reserves, to fund services.  
“In 2010, we had lower reserves than we do now. We consciously built the reserves up to get 
through the really difficult times. We have a budget support reserve so that we can manage 
under and overs, we also have a general fund reserve” [LG4]. 
“Until recently, nearly every year, we would under spend against our budget… in fact, often 
the next year's savings were, in large part, in the previous year's under spend. So in the last 
two years that's stopped…[this year] even though we have £80 million in reserves, we can 
see that that's quite a challenging position” [LG3]. 
Second, as it became clear austerity was not a short-term reaction to the financial crisis, LGs started to use 
liquid assets (cash, reserves and unused capital receipts) in savvier ways and for yield. Figure 3 illustrates a 
remarkable move away from cash and bank deposits whose share in total financial assets declined almost 
continuously from 84 in 2008 to 32 percent in 2019. Of the existing public and private alternatives14 for 
short-term investment, lending to other LGs and investment in money market (MMF) have been the 
preferred choices of investment after austerity and replaced a significant proportion of cash and deposit 
holdings (Figure 4). Although most LGs managed their own assets, around 13-16 authorities used externally 
manged funds (EMFs) for greater returns through speculative investments.   
Investment in MMF and lending to other LGs are relatively low risk. By 2019, LGs had provided 9.6 billion 
pounds in inter-council lending, rising from non-existence prior to the crisis to becoming the primary 
instrument for short-term investments in recent years. Returns on these loans vary but stand favourably in 
comparison. For example, credit to other LGs with a maturity of three to twelve months generated a return 
of between 0.75% and 1% in 2019 (Brighton & Hove City Council 2019) while a fixed-term deposit with a 
British bank for the same period generated hardly more than 0.3% (RBS 2020).15 Welsh local authorities 
made much greater use of inter-council lending than their counterparts in England, and Scotland .   
                                                          
14 Public financial assets included Treasury Bills, deposits with Debt Management Account, and more recently, 
lending to other LGs while private options outside deposits include money market funds and externally managed 
funds. 
15 There are reports that Hammersmith and Fulham council received interest rates between 0.8% and 1.35% on 
inter-council loans typically with a maturity of one year in 2018 and 2019 (Sheppard 2020). 
20 
 
The second most favoured investment instrument were MMF. By 2019, 7.7 billion pounds had been 
invested in these funds in contrast to 0.7 billion in 2008. Two key informants from [LG1] stressed that their 
investments in MMF was nothing unusual among LGs: 
Short-term deposits… 
…short-term investments. 
…money market [funds] in the bank, bonds. So all councils do this, we're nothing new.   
NHS does it, every part of the public sector will, it’s part of …it’s just part of treasury 
management, it's, you know, your main kind of short-term, you know you're going to get a 
budget from the Government, but you may have a short-term cash shortfall, so you'll borrow 
a little bit or you'll invest it, it's quite common in all organisations.   
But a lot of Councils keep it in overnight stuff, almost it's their instant access and it's, well, 
we were saying, "Let's take this bit of money and put it there for a year"… 
And you get a little bit more money from putting it in for longer, and things like that, so 
things like that. 
 
Figure 3. The move away from cash and deposits by British local governments  
 
    Source: DCLG (2012, 2015), (MHCLG) (2021) 
 
Beyond these aggregate trends, spatial patterns of financial investments show considerable variations 
across Britain as well as within individual countries (Online Appendix Table 2). While between 50 and 85 
percent of local authorities in Scotland, Wales and England shifted away from cash and deposits to 
investments in alternative instruments, English LGs have been the primary holders of financial assets in 
Britain, accounting  for around 90 percent of total investment in MMF and LG lending and around 80 
0
10
20
30
40
50
60
70
80
90
100
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
P
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Total financial resources (left axis) Share of cash and deposits (%, right axis)
21 
 
percent of investment in EMFs. Use of EMFs is extremely uneven: more than two-thirds of unitary 
authorities in the East of England invested in them though not a single LG in the North East or Yorkshire 
(and less than 10% of Welsh and Scottish municipalities). Top ten percent municipal investors in EMFs are 
among the wealthiest LGs with respect to financial assets. In England, LGs hold on average £650 of financial 
assets per resident, while the figure falls to £460 and £320 for Scotland and Wales, respectively.16 LGs’ 
ability to generate income from property appears to facilitate the accumulation of financial assets.17 
Simultaneously, the strongest uptake of inter-council lending and MMF investment, relatively safer ways 
of generating additional income, was among county councils (Online Appendix Table 2) which experienced 
the most severe decline in revenue grants between 2009-2019. In the East of England, a handful of LGs 
such as Thurrock, Bedfordshire and East Hertfordshire accounted for much of investments in EMF. Thurrock 
council borrowed one billion pounds from other local authorities to invest into speculative renewable 
energy funds (Ford 2020). In Scotland, Orkney and Shetland also had significant sums (over 0.2 and 0.3 
billion, respectively) invested in EMF. In 2019, almost a quarter of Orkney council’s EMF investment was 
held in UK corporate bonds and 23% in global equities (which carry exchange rate risk), illustrating the more 
speculative character of EMF (Orkney-Council 2020).   
Unsurprisingly, London councils account for the largest proportion of financial investments and have been 
primary net creditors to the rest of the country (Online Appendix Figure 1). However, considerable 
distributional unevenness exists in the city. The asset-rich Southwark council held total assets worth £5.6 
billion in 2018 while this figure was merely £780 million for Bexley. Westminster, the council with largest 
business rate income had £1.2 billion in financial instruments in 2019, while the poorer outer London 
authority, Sutton, only owned a small fraction of that, £77 million. Councils with savvier financial 
management seek out higher interest rates. Much of investment in EMF belongs to richer Inner London 
authorities where there are financial skills and abundant reserves to take higher risks. Hence, other than 
the obvious entity of the City of London, richer councils such as Westminster and Bromley have had six to 
eight percent of their financial investments handled by EMFs who are tasked with generating higher 
returns. Southwark council has consistently had over 60 percent of its financial funds with EMFs throughout 
this period. Other councils have been more conventional in their treasury management, using investment 
opportunities with safe and guaranteed returns: “first and foremost I suppose, you know, our statutory 
kind of way of working around investments and things is about securing, well the security of the money 
first and then the kind of returns secondary” (LG2). 
                                                          
16 Authors’ calculations based on 2019 financial investment data (MHCLG 2021) and ONS population estimates for the 
same year (ONS 2021).  
17 There is a moderate correlation (0.46) between total financial assets owned (MHCLG 2021) and net property income 
across LGs in the UK. 
22 
 
Figure 4. Short-term financial investments of local governments in Britain: 2018-2019 (in thousands of £) 
23 
 
Discussion and Conclusions 
Let us return to the question of whether spatially underpinned changes, following the drastic cuts and 
austerity constitutes an impasse or mutation in local governance. This question can be broken down 
further for theoretical build-up and empirical validation in the specific context of de(financialisation) of 
LGs’ activities: what is the temporal basis of change or mutation? Does the essence of change contain 
structural elements? What are the forms and nature of change in the context of financialisation? What 
is the scope/spread of change? 
The temporal basis should reflect whether the change in question is permanent. On the one hand, the 
long-term nature of austerity has normalised dwindled grants and transfers, probably instituting current 
practices with a considerable degree of permanence and reflecting an uncompromising continuation in 
neoliberal governmentality. On the other hand, there is some fluidity in the process. The uncertainty 
about the prospects for near-future funding and the regulations (as reflected by the continuous changes 
to the allocation and retention of business rates) highlights the unfolding nature of changes at central 
government level with responsibility for broader policies. At the local level, LGs have been 
experimenting and emulating with some success and disappointments. For instance, debt-build up 
amongst LGs has been a concern, leading to the introduction of new restrictions on borrowing for 
commercial investment by the centre (HM.Treasury 2020). Existing fluidities are unlikely to result in 
major reversals, especially in the current environment with the ongoing funding pressures associated 
with the Covid-19 pandemic.  
Using the notion of ‘the essence of mutation’, we distinguish mutations with structural characteristics 
(in relation to, for example, policy frameworks, practice and culture/ethos) from minor changes 
smoothing out irregularities. The evidence here shows the essence of the change in financial governance 
lies in the:  a) emergence of new financial and service risks and b) shifting existing risks from the centre 
to the local level through cuts to grants. Maintenance of an uncertain environment has played an 
important role in intensifying risks. Unlike the private sphere, financial risk in the context of local 
governance can have far-reaching social costs and consequences as they are transformed into service 
risks. Consequently, in addition to their traditional functions, LGs have become risk managers, closely 
following markets, mobilising their assets and liabilities to generate income and balance ‘the books’. 
The new risks not only affected financial management practices but also the culture of local governance. 
The narratives of the key informants here clearly reflected the sense of acute risks and the ongoing 
battle to moderate them.  
So, have new risks led to greater (de)financialisation at local level and if yes in what form and nature? 
The use of liquid assets for income generation and STB to deal with shortfalls for current spending have 
24 
 
been the principal techniques of moderating financial risks.  Severe cuts to grants have forced LGs to 
generate extra income by shifting from traditional treasury management methods of holding liquid 
assets in cash and deposits (‘idle cash’) to higher yield elsewhere, especially MMF and EMF. These trends 
are indicative of enhanced financial logics, greater reliance on financial markets and greater 
financialisation at LG level. The assessment of the findings in relation to liabilities are less straight-
forward. While STB has risen substantially, much of it has been funded through ICB rather than financial 
markets. ICB as a solution to funding needs appears like de-financialisation. There are caveats, however, 
to this conclusion. Terms and conditions of ICB, including the use of private brokers, payment of fees 
and market rates reflect neo-liberal spirit rather than municipalist ethos. Furthermore, major shifts in 
policy and practice are often accompanied by ideological shifts, changing the narratives around 
problems and solutions. In the case of ICB, no such ideational build-up is discernible. Instead, by 
persistently refusing to restore funding, highlighting the presence of reserves at aggregate level, the 
conservative government left LGs with no choice but to create an internal market for borrowing despite 
the regulatory restrictions on borrowing for current spending. Thus, growth of ICB is better 
characterised as risk moderation strategy (both financial and service risks), rather than as a process of 
(de)financialisation, since repayment of STB for revenue expenditure carries greater risks.18 ICB enabled 
LGs to internalise risks within the municipal sector and restrict exposure to external markets in an 
environment of instability, recession and uncertainty. In this way, budgetary gaps are bridged and major 
service risks are avoided.  
Spatial spread of the new financial practices has been as comprehensive as  the impacts of austerity on 
British LGs: the cuts to the grants ranged from 22 to 44 per cent in Wales, Scotland and England during 
2009-2019; the take-up of alternative investments (MMF, EMF and ICB) reached 50 to 85 by 2019 in 
three parts of the country; 44 percent of all LGs resorted to STB for revenue spending and ICB has been 
extensive across the country. These broader trends, however, have been underpinned by significant 
variation across countries and lower administrative divisions. There are clusters of locations where 
liabilities and investments have concentrated (e.g. EMF and MMF investments in London and the South 
East), giving credence to the argument made by (Christophers 2012) about ‘anaemic geographies of 
financialisation’.  
These spatial differences are geographically constituted through the interplay of factors such as the 
extent of budgetary cuts, municipal size, contraction of economic activity, level of urbanisation, 
differences in the service mandates of LGs and financing strategy of individual councils. It is no 
                                                          
18 Unlike capital expenditure current spending generates no financial return. This was the basic principle of 
Gordon Brown’s Golden Rule of 1998, permitted borrowing only for capital investment for government 
expenditure. 
25 
 
coincidence that a larger proportion of Scottish LGs, which experienced the greatest cuts to grants, have 
resorted to STB. Frequent use of STB in Wales reflects not only the cuts but also gloomier economic 
prospects in the country such as a higher-than-average unemployment rate after the crisis and lower 
per capita incomes (Eurostat 2020), negatively impacting revenues and spending needs of Welsh unitary 
authorities. Geographical basis of local advantages is reflected well by London’s unique position as the 
wealthiest and most urbanised city in the country. Although English LGs are net creditors to the other 
parts of Britain, if London is excluded, England becomes a net borrower. In short, local authorities in 
London are not only the key liquidity providers to England but also to the rest of the country. A much 
lower proportion of small councils in less urbanised non-metropolitan districts needed to borrow for 
revenue spending because of lower service obligations. Yet, those small towns that had to borrow faced 
comparatively larger debt burdens because of their limited revenue base.  
Putting all this into an international context, three points are worth highlighting. First, while the US-style 
entrepreneurial and financialised cities of the post-1980s have not been widespread in Britain (except 
perhaps for London) largely owing to the highly centralised LG structure in the country, there are 
indications that some British cities have become more ‘entrepreneurial’ under austerity. Recent 
examples are Plymouth and Croydon councils which pursued debt-led investment in commercial 
property, aiming for economic growth in the municipal area and revenue generation to fund service 
expenditure to counteract austerity. Nonetheless, growing budgetary pressures in the post-Covid era 
resulted in the former entering into a large swap deal recently to hedge risks against interest rises on its 
borrowing mostly through ICB, while the latter issued a Section 114 notice interpreted as a bankruptcy 
notice in the media (Stubbington 2020; Wallis 2021). Previously, Northamptonshire council had to be 
absorbed into other LGs for similar reasons (Ford 2020). Second, despite meagre cross-country 
evidence, there are indications that some of the experiences discussed above are not unique to Britain. 
The cases of Germany and Sweden are particularly intriguing. According to recent data (Eurostat 2021), 
LGs in these two countries account for a significant proportion of STB amongst LGs in Eurozone 
countries. Third, given the current state of research with respect to short-term finances of LGs, there 
are not many parallels in the literature to post-austerity British experience and further research is 
needed to advance our understanding of the international context. A conjunctural approach, reflecting 
contextual positional and situational specificity would particularly be fruitful in understanding the 
commonalities and divergences in financial strategies of local governments internationally over time. 
Post-crisis modifications in LGs’ financial strategies by federal/non-federal systems, market orientation, 
accumulation and welfare regimes, degree of exposure to the crisis and extent of austerity are some of 
the areas with potential for major contributions. 
 
26 
 
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30 
 
Online Appendix Table 1. STB by class of local governments in Britain 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: Estimated using data from MHCLG (2021) 
Note: Real growth is estimated using the GDP deflator for the relevant years.  
 ENGLAND WALES SCOTLAND 
  Unitary 
Authorities  
Metro 
Districts 
County 
Councils  
non-metro 
District Councils  
Boroughs 
(London) 
Unitary 
Authorities 
Unitary 
Authorities 
Number of LG in each category, 2019 111 36 27 201 33 22 32 
Incidence of STB in 2019 (% LGs with STB)      59 72 
North East 57 80 - - - - - 
North West 83 67 - 20 - - - 
Yorkshire 60 56 100 14 - - - 
East Midlands 50 - 33 22 - - - 
West Midlands 50 86 33 11 - - - 
East of England 83 - 60 26 - - - 
South East 75 - 57 31 - - - 
South West 54 - 25 36 - - - 
London 
    
52.8 - - 
Real growth in (%, from 2009 to 2019)           
Revenue grants -33.9 -32.6 -35.4 -30.9 -22.3 -28.2 -43.8 
Business rate income  -26.5 -16.1 -17.2 -38.3 -13.2 0.20 3.9 
Council Tax  20 20 - 15 13 24.8 5.4 
Ratio of STB to Business Rate Income in 
2019 (%) 
89 39 44 123 27 55 60 
31 
 
Online Appendix Table 2. Incidence of and shares in total local government investments in Britain (2019, %)  
Source: Estimated using data from MHCLG (2021) 
UA: Unitary Authorties; (*): Metropolitan and non-metropolitan district councils 
 
 North East North West Yorkshire East Midlands West Midlands East South East South West London Wales  Scotland 
Share in total amount of Loans to LGs 2.8 6.3 5 8.1 3.5 6.5 16.5 8.2 31.5 4 7.6 
Incidence of Loans to LGs  (% LGs)           
England UA (57) 57 67 20 100 75 33 67 69 - - - 
England Metro  (36) 40 73 67 - 29 - - - - - - 
England County (27) - 100 100 40 100 60 71 75 - - - 
England non-metro (201) - 61 43 69 47 63 62 48 - - - 
London Boroughs (33) - - - - - - - - 67 - - 
Wales UA (22) - - - - - - - - - 59 - 
Scotland UA (32) - - - - - - - - - - 44 
Share in total amount of MMF 3.9 8 5.1 8.3 8.4 8.7 23.3 9.7 18 5.6 1 
Incidence of MMF (% LGs with STB)           
England UA (57) 57 83 100 75 100 83 100 77 - - - 
England Metro*  (36) 60 80 56 - 86 - - - - - - 
England county councils (27) - 50 100 100 100 100 100 100 - - - 
England non-metro* (201) - 61 14 75 74 68 80 72 - - - 
London Boroughs (33) - - - - - - - - 79 - - 
Wales UA (22) - - - - - - - - - 27 - 
Scotland UA (32) - - - - - - - - - - 50 
Share in total amount of EMF 0 2.4 0 2.1 1.2 31 21.2 5.2 16.7 0.4 19.8 
Incidence of EMF (% LGs with STB)           
England UA (57) 0 50 0 0 25 67 31 23 - - - 
England Metro  (36) 0 20 0 - 0 - - - - - - 
England County (27) - 0 0 20 0 0 43 0 - - - 
England non-metro (201) - 6 0 8 21 12 31 20 - - - 
London Boroughs (33) - - - - - - - - 18 - - 
Wales UA (22) - - - - - - - - - 9 - 
Scotland UA (32) - - - - - - - - - - 9 
32 
 
 
 
 
 
 
Source: Estimated using data from MHCLG (2021) 
 
-1000
-500
0
500
1000
1500
2000
Online Appendix Figure 1. Net borrowers and lenders of ICB (£million, 2019)