A delay to the fair funding review, risks of a new round of austerity and ongoing high levels of inflation have left the medium- to long-term funding outlook for councils “volatile” and “uncertain”, local authorities’ budget reports have shown.
Over the last week, Bristol City Council and West Sussex County Council have outlined that, despite the Local Government Finance Settlement providing more funding than expected for 2023/24, the outlook for both authorities in the long-term remains uncertain.
In a report, Bristol City Council estimated that it faces a budget gap of £38m in 2025/26, which will rise to £40m in 2027/28 if unmitigated. However, it detailed that the predicted funding shortfalls are “extremely sensitive to inflation” and the breadth of the potential variation ranges from £10m to £125m.
The report highlighted that there continues to be a lack of funding certainty due to continued delays to the fair funding review. It also suggested that risks of a “new round of austerity” could lead to further local authority funding cuts from 2025/26.
“The national funding outlook for local government from 2025/26 is therefore volatile and with an unparalleled range of scenarios and uncertainty in longer-term forecasting assumptions,” the report stated.
Similar to Bristol, West Sussex County Council has forecast that despite being able to balance its budget in the current financial year, the authority faces a budget gap of between £50m to £104m over the next four years depending on the level of council tax.
The national funding outlook for local government from 2025/26 is therefore volatile and with an unparalleled range of scenarios and uncertainty in longer-term forecasting assumptions.
Long-term challenges
At a meeting of the cabinet on 31 January, Taryn Eves, director of finance and support services at West Sussex County Council, said: “The local government finance settlement was very welcomed in the additional funding, particularly in terms of social care, but also the further indication of funding that we might receive in 2024/25. It does make planning for that year more manageable but doesn’t necessarily help us with our long-term challenges.”
A report by Eves outlined that beyond 2024/25 “there remains much uncertainty”, with further delays to the fair funding review and the business rates baseline reset. It detailed that West Sussex expects that the implementation of these reviews could “result in a significant reduction in funding, estimated to be up to £30m”.
Eves added: “The longer-term is much more challenging, with a budget gap of between £50m and £100m depending on the level of council tax. But, I just wanted to flag that this excludes three main issues: one is the future funding of the dedicated schools grant, two is the impact of the social care reforms, as they have been delayed until 2025, and, three, the future of government funding.
“All of these three factors could impact from 2025/26 and their impact could be quite significant.”
Eves stated that the authority will continue to lobby government on the long-term challenges it faces “to recognise the role the sector plays in delivering services, which need to be funded”.
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