The next spending review will be “critical to the future of local services”, the Local Government Association has said.
The review was announced by chancellor Rachel Reeves in a statement to the House of Commons about the findings of a Treasury audit into the state of the public finances, in which she claimed the new government will inherit a projected overspend of £22bn. A date of 30 October was announced for the next Budget.
A one-year spending review will be carried out this autumn, followed by a more comprehensive multi-year spending review next spring and a commitment to hold a three-year spending review every two years.
Pete Marland, chair of the Local Government Association’s Economy and Resources Board, said the spending review “should provide greater certainty over financial reforms” as he urged the government “to set up a review to explore options to improve the local government finance system”.
London Councils said the spending review was an opportunity to bring “desperately needed” stability to council finances and strengthen authorities’ “role as drivers of local growth”. The cross-party group is now estimating that London boroughs face a £700m funding gap in 2025/26 under current funding arrangements.
In her statement, Reeves said “difficult decisions” would be required across spending, welfare and tax, but she pledged not to increase national insurance, income tax or VAT. However, shadow chancellor Jeremy Hunt warned the statement was a “shameless attempt to lay the ground for tax rises”.
Reeves also promised a “new approach” to public service reform to drive greater productivity in the public sector. “We will embed an approach to government that is mission-led, reform-driven with a greater focus on prevention and integration of services, at both a national and local level, and that is enabled through new technology,” she said.
That includes identifying where artificial intelligence (AI) can be used, while a new office of value for money will be established, focusing on where the value of spending can be improved.
Reeves said she expected all levels of government to be run “effectively and efficiently”, and promised to work with leaders across the country to achieve this. “That means effective local government,” she said.
However, the new government will not be proceeding with adult social care charging reforms.
Funding reductions ‘unthinkable’
Marland said: “This spending review will be critical to the future of our local services with councils facing a funding gap of more than £6bn over the next two years.
“Councils hold the key to unleashing the full potential of local communities, tackling our national challenges, relieving pressure on the Exchequer and helping the government achieve its ambitions. This can only happen if councils have the right powers, sufficient and sustainable funding that reflects current and future demand, certainty and multi-year settlements and less bid-based funding pots. Right now, councils are being pushed to the brink with rising adult social care costs, children’s placements and temporary accommodation.
“Councils have had to find billions in savings as a result of increasing demand for, and costs of, services alongside local government core spending power being reduced in real terms by around a fifth from 2010/11 to 2024/25. Any further funding reductions in the years ahead would be an unthinkable prospect with councils of all types already struggling to protect the services which bind our communities together and protect our most vulnerable from cutbacks.
“The current system of funding local government is out of date, opaque, overly complex, and limits the ability of councils to be more self-sufficient by raising income from other sources. In recent years, council tax has also increasingly been relied on too heavily to increase councils’ core spending power. While council tax is an important funding stream, it has never been the solution to the long-term pressures facing councils.”
Claire Holland, chair of London Councils, said: “Turning the tide on the council finance crisis is crucial for tackling so many of the UK’s most pressing challenges. Whether boosting housebuilding, making faster progress on net zero targets, or arranging social care support that keeps people out of hospital, councils and the services we provide for residents and businesses are essential.
“Insufficient and unpredictable funding has resulted in unsustainable pressures on council finances, as London’s population has grown and demand for services – particularly social care and homelessness support – has skyrocketed.
“Restoring stability to boroughs’ finances will put us in a much stronger position to work in partnership with the government on our shared priorities and help make a positive contribution to its national missions.”
CIPFA response
CIPFA chief executive Owen Mapley said the statement “provided welcome confirmation that regular spending reviews and longer-term planning and spending plans will be re-introduced”.
He said the approach “should improve stability, encourage greater innovation and unlock improved value for money compared with the succession of ad hoc and short-term funding settlements experienced in recent years”.
But he noted that many public services “continue to face ongoing financial pressures” and the “impact of high inflation over the last two years [having] also led to sustained increases in costs that are not reducing even as inflation returns to lower levels”.
Mapley said: “With statutory delivery responsibilities that come from legislation designed years before today’s fiscal environment, many councils are not able to say ‘we can’t do it’ but must find ways to meet these increased costs from budgets that are not sufficient to meet demand.
“CIPFA welcomes the government’s commitments to transparency and the incorporation of spending pressures for the current and the next year in OBR assessments linked to the budget. Difficult decisions to deal with in year budget gaps are needed but these difficult decisions must not repeat the experience of previous years where cuts to front line public services had widespread negative impacts on service users and communities. Such cuts also devastated investment in the sort of early intervention and preventative services that can improve outcomes, reduce costs in the long run and unlock greater value for money.”
“Therefore, as part of the chancellor’s plan to provide in-year and next year control totals at the Autumn budget on 30 October ahead of a longer-term spending review, CIPFA welcomes the focus on investment in prevention, integration and technologies. We hope the recognition of in-year pressures that featured so prominently in the chancellor’s statement will not lead to damaging cuts to services already reeling from ongoing budget deficits.”
Avoiding ‘catastrophic consequences’
Responding to the announcement that the government will not be proceeding with adult social care charging reforms, Martin Tett, adult social care spokesperson for the County Councils Network, said: “Councils have supported the principle of the adult social care charging reforms, but we have always said that they must be fully funded by the government of the day. The County Councils Network’s recent analysis showed that the costs of the reforms has spiralled to a projected £30bn in the decade after their introduction, with insufficient money committed to them.
“The government has felt it is unable to take forward these reforms in the current Parliament and we understand that this will be frustrating to campaigners. But with no funding committed to the reforms and with councils still facing acute workforce and system pressures, introducing these changes in October 2025 could have had some catastrophic consequences for council finances, health and care systems and individuals who currently receive services. Now, the government must prioritise addressing these current pressures at the forthcoming Spending Review.
“We must remember that reform to social care encompasses much more than charging reform. We want to work with this government on other key reform agendas, such as addressing the recruitment and retention crisis in the care workforce and on ensuring the day-to-day care services are sustainability funded and reformed in the long run.”
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