Rethinking Redistribution (2/3): Bankrupt Local Councils

Introduction

Local councils facing Section 114 notices—effectively declaring bankruptcy—require structural, investment-led solutions rather than short-term bailouts or austerity. In this second in a series of AI-assisted articles, I argue that Regional Development Banks (RDBs) offer a strategic and outcomes-based framework to restore solvency while building long-term wellbeing through investment in QALY-linked infrastructure and services.

1. Convert Deficit Spending into Long-Term Investment via QALY Bonds

RDBs could help councils convert short-term overspending on reactive services into long-term capital investment via QALY-linked bonds. These would finance health-optimised housing or social infrastructure, with returns paid from future public sector savings.

2. Underwrite or Refinance Toxic Legacy Debt

RDBs could buy out and refinance councils’ high-interest legacy debt (e.g., LOBOs, PFIs) with low-interest, long-term loans tied to QALY improvements and community regeneration goals.

3. Enable Councils to Monetise Preventative Interventions

RDBs can fund preventative services—like youth support or mental health outreach—that generate long-term savings for the NHS, police, and social care. Councils receive “QALY dividends” from the cost savings.

4. Finance Local Income-Generating Assets

RDBs could fund municipally owned infrastructure (e.g., housing, green energy) that generates income while boosting local wellbeing. These assets could form the backbone of a council’s long-term fiscal recovery.

5. Establish “Local QALY Recovery Plans”

In place of austerity-based recovery plans, Section 114 councils would co-develop outcome-focused recovery strategies with RDBs and NHS partners. These plans would direct investment toward services that boost Quality Adjusted Life Years (QALYs).

6. Use RDBs to Match Councils with Blended Capital

RDBs can serve as brokers for councils, matching them with capital from NHS, pension funds, and social investors under a unified outcomes investment plan.

7. Embed QALY-GDP Principles in the Section 114 Process

Section 114 rules could be reformed to allow outcome-based investment and mandate recovery planning with measurable QALY and social impact metrics.

Benefits of the RDB-Based Model

Fiscal Recovery: Restructures debt and restores service capacity.

Investment-Led Growth: Turns fiscal crisis into a renewal opportunity.

Better Health Outcomes: Tackles root causes of overspending.

Shared Accountability: Aligns local institutions behind common goals.

Local Empowerment: Enables councils to invest, not just cut.

Policy Changes Required

Amend the Local Government Finance Act to permit outcome-based borrowing during fiscal crises.

Mandate Treasury to support and underwrite RDBs.

Establish a QALY Outcomes Regulator.

Enable NHS ICSs and DWP to pool budgets with councils for joint outcomes-based investment.

Conclusion

Regional Development Banks offer a powerful, regenerative approach to council insolvency. Instead of austerity, they provide a mechanism to restore fiscal health through long-term, QALY-driven investment in people and places. This is a practical pathway to a healthier, more resilient local government system.