One in six councils could run out of earmarked and unallocated reserves as early as next year due to “unprecedented demands and pressures”, according to new research.
Analysis by professional services firm Grant Thornton UK, developed with CIPFA, has found that English councils face a £7.3bn black hole by 2025/26, which is an increase of £4.6bn since the beginning of this year.
The study found that without additional income from central government, local authorities will need to make savings of over £125 per head of population by 2025/26.
Phillip Woolley, Grant Thornton’s head of public services consulting, said: “Local government has faced unprecedented demands and pressures over the last decade and without action from both central government and councils, in the face of these inflationary pressures, the list of authorities in need of exceptional support looks set to grow quickly.”
Grant Thornton said that councils received additional government support during the pandemic of £24.7bn in April 2020 and £30bn in March 2021. Although the research suggests that this exceptional increase in reserves will not act as a “financial buffer to stop financial failure” in authorities.
The research also found that councils’ simply receiving additional funding from central government will fail in the long run to address financial sustainability issues. This is due to the disparity of economic output, council income and service delivery across the country, both in terms of efficiency and outcomes.
Woolley added: “Our research shows, the additional Covid-19 funding – while critical to support immediate challenges – has not addressed underlying systemic issues or the precariousness of councils’ financial sustainability in the face of economic instability.
“We see four key steps to meeting this challenge: clarifying roles and responsibilities of councils; a requirement to develop a financial stability plan that is government backed and locally owned; strengthening local governance; and, critically, resolving the long-awaited fair funding review for local government.”
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