The County Councils Network (CCN) has warned that local authorities face an “unpalatable trade-off” between reducing statutory services and “insolvency” amid a £54bn funding gap.
According to the latest research by the CCN, published today (3 October), rising demand, inflation and continuing market failure have caused local authority costs to rise by £26bn between 2022 and 2030. These costs are primarily driven by three services: adult social care, children’s social care, and home-to-school transport.
The CCN’s analysis showed that the rise in costs could result in a cumulative funding gap of £54bn over the next five years for local authorities, which could result in 16 authorities issuing section 114 notices by 2026/27.
“We want to avoid the unpalatable trade-off between reducing our statutory responsibilities and insolvency,” James Maker, director of policy and communications at the CCN told Room151.
In a spending review submission, the CCN stated that unless the government provides additional resources and reforms the three services of adult social care, children’s social care and home-to-school transport, authorities won’t be able to provide statutory services.
“There needs to be a decision by government: is it going to fund us to the levels that we need, and alongside that undertake deep and fundamental reform. If it’s not willing to do that, then there needs to be a discussion around what the statutory responsibilities of local government are.
“Unless you change those statutory responsibilities, the inevitable consequence of that is councils are at risk of a section 114 notice,” Maker said.
The chancellor Rachel Reeves announced a multi-year spending review in July, which will conclude in Spring 2025, while the upcoming budget for 2024/25 is expected on 30 October.
Fair funding review
Maker pointed out that local government is now at a “critical point” where “deep fundamental reform” to the funding system is needed, which could help reduce the funding shortfall.
“We recognise that reform to local government finance is inevitable and necessary because it’s out of date, but in the short term, we don’t believe that’s the solution to the funding gap without significant additional resources.”
In its spending review submission, the CCN stated that the government’s reforms should focus on incentivising mainstream schools to become more inclusive for SEND pupils to reduce spend on school transport and means-testing provision, intervening in the market to cap provider fees for residential placements for children, and addressing the spike in costs for adult social care services for those of working age.
Barry Lewis, finance spokesperson and vice-chair of the CCN, said: “This needs to happen urgently with a plan to be actioned within the next 18 months, otherwise we risk undermining the wide-ranging purpose of local government and derailing the government’s mission-led approach to public service reform and greater devolution to councils.”
Alongside this, the CCN’s research revealed that the government can’t just rely on increasing council tax to reduce the funding shortfall, with annual increases by 3% only decreasing the gap by a third to £37.6bn.
“While council tax rises can reduce this deficit, government cannot rely on this alone and local authorities would still be left to find billions each year,” Lewis added.
This comes as 19 local authorities required exceptional financial support last year as they couldn’t balance their in-year budgets.
“Exceptional financial support and capitalisation directives are not a sustainable solution to ongoing funding; it creates a stopgap,” Lewis said.
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