Manchester City Council faces a cumulative budget gap of £71.9m over the next four years due to mounting cost pressures and declining government funding.
A 2024/25 Budget Process report, which is to be presented to the council’s Resource and Governance Scrutiny Committee on 7 September, has outlined that by 2025/26 Manchester faces a funding gap of £58m, which will rise to £71.9m in 2026/27.
The report detailed that the main factors driving Manchester’s funding gap include cost pressures stemming from pay inflation; non-pay inflation in line with contractual rates of consumer price index forecasts totalling £14.5m in 2024/25; and demographic growth pressures for adults and children’s social care valued at £6.7m in the same financial year.
‘Unsustainable’ financial position nationally
Carol Culley, Manchester’s deputy chief executive and city treasurer as well as report author, noted that the council’s £71.9m funding gap could also be influenced by the decline of local government funding over the past 11 years.
In the report, she referenced a recent analysis by the Public Accounts Committee, which found that council income was £8.4bn lower in real terms than it had been a decade before.
Culley said: “In recent years the significant and sustained reductions experienced in central government funding to local government have lessened, with more reasonable funding settlements being provided since 2021/22.”
This comes as an analysis by the BBC’s Shared Data Unit revealed that local authorities are facing a £5.2bn funding deficit by April 2026.
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Culley also highlighted that in addition to dealing with the legacy of over ten years of austerity, there are increasing service pressures driven by a “complex” mix of factors, which include demographic changes.
“This position is becoming increasingly unsustainable nationally, resulting in a number of local authorities reporting significant financial difficulties and becoming subject to government intervention,” she added.
Woking Borough Council is the latest local authority to be placed under government intervention due to the size of its debt, which was valued at £1.8bn in March 2023. Also, in June, Woking was driven to issue a section 114 notice as it revealed that it faced a £1.2bn funding deficit.
In addition, in the past two months, Kent, Kirklees, Guildford, Hastings, Southampton and Bradford councils have all warned that they face potential s114 notices in the future.
‘Smoothing reserve’
The report detailed that Manchester’s £71.9m budget gap can be reduced to £54.2m through the use of a £17.8m ‘smoothing reserve’.
However, the report warned that “this would fully utilise the balance of the smoothing reserve available and potentially create a very large funding gap in 2027/28, prior to the expected return of commercial income”.
The report stated that the use of reserves will allow the council time to develop a longer-term savings plan or increase income as “an ongoing reliance on reserves would not represent a sustainable long-term approach”.
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