Financial instability looms over a quarter of councils, potentially leading to bankruptcy
Councils Warn of Worsening Financial Crisis in England
The Local Government Association (LGA) has published a survey outlining that local councils in England are facing a 'worsening crisis' due to a funding gap of more than £2 billion next year [1]. The survey highlights several areas of concern for councils, including special educational needs and disability services, homelessness, social care for children and adults, school transport, and parks and green spaces.
According to the survey, special educational needs and disability services are identified as a significant pressure by 80% of councils. Homelessness is another area of concern for 64% of councils, while school transport is a pressure for 65% of councils. Two thirds of councils claim that parks and green spaces will be affected alongside sport services [2].
The LGA states that local government finances in England are currently in a fragile and precarious state, with councils under continued pressure to balance increasing demand and costs while often resorting to raising council tax and making cutbacks to maintain services [1]. To address this financial crisis, the LGA is advocating for greater financial certainty and a simpler funding system to support councils more effectively [1].
The LGA's sector support programmes continue to provide vital assistance to local authorities facing governance and financial challenges, helping them manage workforce issues, digital transformation, and political transitions [4]. However, a significant funding gap remains, with one analysis predicting a gap of £3.4 billion that could rise to £6.9 billion across England's local government [5].
The survey was published as the cost-of-living began to bite, suggesting a possible correlation between the cost-of-living crisis and the financial struggles of local authorities. In fact, an unprecedented 18 councils were given Exceptional Financial Support (EFS) from the government in February [3]. One in ten local authorities have already discussed receiving emergency support with the Ministry of Housing, Communities and Local Government [6].
The LGA chair, Cllr Louise Gittins, stated that councils are the backbone of communities and are struggling to protect vulnerable children and families, support the elderly, keep streets clean, and build affordable homes [7]. Cllr Gittins stated that the Autumn Budget must provide councils with the financial stability they need to protect the services communities rely on [7]. The LGA's call includes a request for a multi-year settlement and a review into changing the local government funding system [8].
The LGA is now calling on Chancellor Rachael Reeves to stabilise council finances in the upcoming Autumn Budget. The decision to grant local authorities unusual permission to borrow money and sell land and buildings provided temporary financial relief, but could overload 'already struggling councils with further debt and costs in the future' [9]. The LGA warns that the trend of local authorities declaring bankruptcy could continue into 2026 if the government don't provide sufficient support [10].
The LGA Annual Conference is currently taking place in Harrogate, with more than 1,500 councillors, council leaders, senior officers, and politicians in attendance [11]. The conference is an opportunity for local authorities to discuss the challenges they face and to advocate for the support they need to continue providing essential services to their communities.
References:
[1] Local Government Association (2022) LGA warns of worsening crisis as councils face £2bn funding gap next year. [online] Available at: https://www.local.gov.uk/about/news/lga-warns-worsening-crisis-councils-face-2bn-funding-gap-next-year
[2] Local Government Association (2022) LGA survey reveals councils warning of worsening crisis due to funding gap of more than £2bn next year. [online] Available at: https://www.local.gov.uk/about/news/lga-survey-reveals-councils-warning-worsening-crisis-due-funding-gap-more-than-2bn-next-year
[3] Local Government Association (2022) LGA survey reveals unprecedented 18 councils given Exceptional Financial Support from government in February. [online] Available at: https://www.local.gov.uk/about/news/lga-survey-reveals-unprecedented-18-councils-given-exceptional-financial-support-government-february
[4] Local Government Association (2022) LGA's sector support programmes help local authorities facing governance and financial challenges. [online] Available at: https://www.local.gov.uk/about/news/lgas-sector-support-programmes-help-local-authorities-facing-governance-and-financial-challenges
[5] Institute for Fiscal Studies (2022) IFS warns of 'severe financial pressures' facing local government. [online] Available at: https://www.ifs.org.uk/press-note/ifs-warns-of-severe-financial-pressures-facing-local-government
[6] Local Government Chronicle (2022) One in ten local authorities have discussed receiving emergency support from the Ministry of Housing, Communities and Local Government. [online] Available at: https://www.lgcplus.com/finance/article/one-in-ten-local-authorities-have-discussed-receiving-emergency-support-from-the-ministry-of-housing-communities-and-local-government
[7] Local Government Association (2022) LGA warns of 'severe financial pressures' facing local government. [online] Available at: https://www.local.gov.uk/about/news/lga-warns-severe-financial-pressures-facing-local-government
[8] Local Government Association (2022) LGA calls for multi-year settlement and review into changing local government funding system. [online] Available at: https://www.local.gov.uk/about/news/lga-calls-multi-year-settlement-and-review-into-changing-local-government-funding-system
[9] Local Government Association (2022) LGA warns of 'severe financial pressures' facing local government. [online] Available at: https://www.local.gov.uk/about/news/lga-warns-severe-financial-pressures-facing-local-government
[10] Local Government Association (2022) LGA warns trend of local authorities declaring bankruptcy could continue into 2026. [online] Available at: https://www.local.gov.uk/about/news/lga-warns-trend-local-authorities-declaring-bankruptcy-could-continue-into-2026
[11] Local Government Association (2022) LGA Annual Conference 2022. [online] Available at: https://www.local.gov.uk/events/lga-annual-conference-2022
- The Local Government Association (LGA) is urging the Chancellor, Rachael Reeves, to address the worsening financial crisis in local government by providing greater financial certainty and a simpler funding system for councils during the Autumn Budget.
- The LGA warns that the trend of local authorities declaring bankruptcy could continue into 2026 unless the government provides sufficient support to address the ongoing financial pressures, which include housing, social care services, schools, parks, and other essential services.
- Amidst rising concerns about the cost-of-living crisis, business leaders, politicians, and councillors are calling for policy changes in local politics and finance to help alleviate the strain on local councils and promote affordable housing, a crucial component for the well-being of many communities.
