Liverpool Council could face bankruptcy and is considering imposing emergency spending controls after the government failed to offer anywhere near enough support during the coronavirus crisis.
The city council, already battered and bruised after ten years of austerity, is now facing a financial cliff edge of £44m because of extra spending to support residents through the crisis and a loss of income.
Communities Secretary Robert Jenrick has previously pledged that councils will be reimbursed for their emergency epidemic spending – but the funding support from government has shockingly decreased in the second tranche.
The council faces £78m in increased costs and loss of income because of Covid-19 this financial year.
It has only received £34m from government in two tranches, with the second lower than the first.
Before the crisis hit, the city council was forced to find a further £30m in savings when it set its latest budget in February.
And that came after a total cut of £436m in central government funding since 2010.
The authority's reserves are now at a vanishingly small £17m, which means there is now a very real chance of the city going bust.
Mayor Joe Anderson and chief finance officer Mel Creighton are now preparing to hold an emergency budget meeting in June, where what is known as a Section 114 notice may be imposed.
This is a notice for emergency spending controls, which means that all council spending will be banned aside from the statutory services used to protect vulnerable people.
But the council's finances are so perilous hat it may not actually be able to deliver those most essential of services – which are especially important during the current health crisis.
There is huge anger at the lack of support from government, which has allocated coronavirus support cash on a population basis rather than on need.
It means that the poorest council areas like Liverpool have suffered with less cash, while some leafy southern authorities have seen a huge increase in the funding they have recieved.
Mayor Anderson described the situation as "truly frightening" and "the most perilous" he has seen despite running the city through a decade of austerity.
He said: "Technically we could go bankrupt.
"I have spoken to the finance director and it may be that we have to file a Section 114 notice which says we have to stop all spending.
"We simply will no longer have enough income to meet what we are spending.
"I have written to our MPs and spoken to opposition leaders to inform them of this very real possibility, we will have an emergency budget meeting in June."
Another sign of the true severity of the situation is that opposition leader, Liverpool Liberal Democrat leader Cllr Richard Kemp has said he is fully in agreement with Mayor Anderson on this issue.
He said: "When Joe says this he is speaking for me and my party as well and we have offered our full support.
"Liverpool is caught in a perfect storm of the most needs and the least money, the reality is that even if we stop spending on anything except statutory services, that probably won't be enough."
Cllr Kemp has written to the Local Government Agency to urge them to take a stronger line with government over what he says is an unfair situation regarding council funding.
Mayor Anderson said the financial situation has never been more dangerous.
He added: "We are getting no income from the leisure centres or car parks or any of those things but we are still paying all our staff.
"We are paying out huge amounts on the school hubs, school meal vouchers and other food for vulnerable residents.
"We were told by Robert Jenrick that we would be reimbursed for the money we have had to spend in this crisis, but that just hasn't happened.
"Liverpool is a city with some of the worst levels of deprivation in the country, it is an absolutely crazy situation that instead of getting more government support, we are getting less.
"They are literally taking the money from the areas that need it most.
"As a result we are facing the very real possibility of running out of money altogether."
Speaking on Tuesday as additional funding for councils in England was announced, Mr Jenrick said: "Councils are playing a central role in our national fight against coronavirus and the government continues to back them at this challenging time.
"That’s why I announced an extra £3.2 billion of support for councils to help them to continue their extraordinary efforts."
"Today I’m setting out how the latest £1.6 billion of this will be allocated to councils in the fairest way possible, recognising the latest and best assessment of the pressures they face.
"We are backing local district councils and a clear majority will receive at least £1 million in additional funding."
An MHCLG spokesperson said:
“We do not recognise these figures. The Government is providing a significant package of support for Liverpool City Council including almost £34 million to deal with the pressures of coronavirus and their core spending power rose by £32 million this financial year even before this additional emergency funding was announced.”
“In total we are providing councils with over £3.2 billion which responds to the range of pressures councils have told us they are facing.”