The local government funding system is “fundamentally broken”, according to Leeds City Council – which must save nearly £60m in its 2024/25 budget.
A financial reporting update authored by section 151 officer Victoria Bradshaw has projected an overspend of £33.9m for financial year 2023/24, as at July (month four). This represents a 19% adverse movement from the authority’s Q1 position, Bradshaw’s report said.
And an update of the authority’s Medium Term Financial Strategy for 2024/25 to 2028/29 identifies an estimated General Fund budget gap of £251.0m for the five-year period, of which £59.2m relates to 2024/25.
Bradshaw wrote that Leeds’ position should be understood within the wider national context. “Council finances are in a critical state and there is growing concern as an increasing number of councils are reporting overspends in the current financial year and significant estimated budget gaps in future financial years which provide a challenge to their financial sustainability,” the report stated.
“The current and future financial climate for local government represents a significant risk to the council’s priorities and ambitions.”
Bradshaw noted that the increasing cost of social care, particularly within children’s services – “where government has to date failed to recognise the significantly higher costs resulting from increasing numbers of children in care” – was driving the overspend.
Combined with the impact of pay and price pressures “which are in excess of the level of resources provided for by government”, this has resulted in “a number of local authorities issuing or raising the possibility of issuing section 114 notices, which give notice that a council cannot balance its budget”.
The freeze on recruitment, agency and overtime spend, and the freeze on non-essential spend introduced in 2022/23 at Leeds City Council will continue in 2023/24, the report added. Work will also continue to review the highest cost/spend areas, while all services are “continuing to explore opportunities to maximise income”.
A review of the council’s assets is also underway “to ensure the council has the right numbers and mix of assets”.
The budget for 2023/24 requires delivery of £58.6m of savings, the report noted. As of July, while most of the budgeted savings are expected to be delivered or mitigating actions found, a £12m shortfall has been identified.
In response to the financial position Leeds finds itself in, James Lewis, council leader, called for a “fundamental change to how local government’s vital services are funded”.
Lewis stated: “Recent high-profile developments have brought the perilous state of council finances across the country into sharp focus. Councils are under massive pressure to deliver savings and support an increasing number of vulnerable people in need while also keeping up good levels of day-to-day services such as collecting waste and fixing the roads. What’s becoming ever more apparent is that the system of local government funding is fundamentally broken.”
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Lewis reiterated his previous calls for the government’s Fair Funding Review to be implemented, and a switch to more of a needs-based approach when deciding how council funding is allocated. Replacing the current one-year funding agreements with multi-year settlements would also offer greater stability by helping local authorities with their financial planning, he said.
If the results of the Fair Funding Review which began in 2016 were applied, Leeds would be better off by an estimated £45.3m next year, the authority said. However, the government has now indicated any such reforms will not be introduced before the end of the current parliament.
Lewis added: “The decision not to implement the Fair Funding Review is deeply frustrating as this issue needs addressing now and cannot wait; people in Leeds and elsewhere need the support that money would have offered them. We will continue to do all we can with what we have, but a complete revamp and modernisation of how local government finance is managed with a more needs-based approach at the heart of all decisions is absolutely essential and long overdue.
“Core government funding for Leeds is now less than half the level it was in 2010/11, being £197.8m for this year compared to £450m then, which means that since 2010 over £2.5bn cumulatively has been taken away from frontline local council services provided by Leeds City Council.”
The latest budget position will be considered by senior councillors at a meeting of Leeds City Council’s executive board next week (20 September).
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