Financial failure risks becoming “systemic” across local government with any further funding cuts being “disastrous” – tipping “many more councils towards financial ruin”, the Local Government Association (LGA) has warned.
In its submission to the Treasury ahead of the Budget on 30 October, the organisation urged the government to take “immediate steps” to stabilise council finances.
Service spending in financial year 2022/23 was 42.1% lower than it would have been had service spend moved in line with cost and demand pressures since 2010/11, according to new LGA analysis.
Councils have therefore made £24.5bn in service cuts and efficiencies over this period, the LGA said, with there being “simply no more capacity for further cuts to council budgets”.
The LGA’s submission describes a funding gap of more than £2bn in 2025/26 across councils and notes that 18 councils are reliant on being given exceptional financial support by the government to balance their books in 2024/25.
Analysis conducted by the LGA shows that English councils face a £2.3bn funding gap in 2025/26, rising to £3.9bn in 2026/27 – a £6.2bn shortfall across the two years. This is due to inflation and wage pressures alongside cost and demand pressures, the LGA said.
The submission also outlines key cost pressure drivers in children’s and adult social care, homelessness service costs – which have surged by £604m, or 77.4% since 2019/20 – and councils’ Dedicated Schools Grant budgets due to increased demand for services for children with special educational needs and disabilities (SEND). The ‘deficit’ on the provision of SEND services is forecast to reach £5bn by 2025/26.
The LGA submission also described recruitment and retention issues and showed how councils are increasingly having to draw on their financial reserves to balance budgets. Councils’ un-ringfenced reserves fell by £1.7bn in 2022/23 and £1.1bn in 2023/24, the LGA said.
The association called for short-term support from government by means of a “significant and sustained increase in overall funding that reflects current and future demands for services”; multi-year and “timely” finance settlements; and “general rather than ring-fenced” grant funding, reducing “the fragmentation of government funding and ending the use of competitive bidding to allocate grant funding”.
The LGA submission also looked to the Spending Review next Spring, setting out the benefits of investing in preventative services “rather than a reactive, demand-led model” to service spending. The LGA called for the government to convene a cross-party review of, and debate on, options to improve the local government funding system.
Noting that councils are the “key to delivering the government’s priorities”, LGA chair Louise Gittins said the “risk of financial failure across local government is potentially becoming systemic”.
She added: “Councils already face a funding black hole of more than £2bn next year. Having already delivered £24.5bn in cuts and efficiencies, any further cuts on top of this would be disastrous. The government needs to take action to provide councils with financial stability and certainty in order to unlock their full potential.
“Immediate financial support and long-term funding reform and certainty – alongside a focus on preventative spending – are essential to protect services and enable councils to fully contribute to the government’s agenda, from social care to housing, economic growth and tackling climate change.”
Spending power and support
The LGA’s sentiments were echoed in a submission to the Treasury by the District Councils’ Network (DCN).
The cross-party network of 164 district councils and five unitary councils, and special interest group of the LGA, said it is seeking an increase in spending power for all member councils and “targeted additional support for those facing high temporary accommodation costs”.
The DCN is asking the government to commit to increasing Core Spending Power for district councils by CPI +1% in the 2025/26 finance settlement, and that the increase should not depend solely on council tax rises.
The network also called for an increase in council tax referendum limits to at least 10% or £15 (whichever is greater) in 2025/26 as “a first step to removing referendum limits altogether”.
Other initiatives outlined by the DCN include empowering councils to set planning and licensing fees to recover the full cost of the service and removing the housing benefit subsidy cap for temporary and exempt accommodation “so that councils are fully funded for the cost and expand the Homelessness Prevention Grant”.
The DCN has also called on the government to provide certainty for Housing Revenue Accounts through a 10-year social housing rent deal and inject funding to tackle HRA budget gaps “caused by previous rent cuts and caps”.
—————
FREE bi-weekly newsletters
Subscribe to Room151 Newsletters
Follow us on LinkedIn
Follow us here
Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address
Room151 Webinars
Visit the Room151 channel
