The Local Government Association (LGA) is calling for measures to stabilise council finances to be included in this month’s Budget after a survey of members revealed that a quarter of councils in England expect to call on the government for emergency funding in the next two years to avoid bankruptcy.

The LGA is calling on the Chancellor to take action to stabilise council finances and avoid another hammer blow being delivered to local services. Alongside adequate government funding to sustain the vital services, the LGA wants to work with the government to ensure councils receive multi-year finance settlements. 

Cross-party review

At the same time, it is calling on the establishment of a cross-party review on potential reforms to the local government funding system.

Councils in England already face a funding black hole of £2.3bn next year, rising to £3.9bn in 2026/27 and £6.2bn over two years, fuelled by spiking inflation in recent years, unfunded increases in the National Living Wage, and growing demand for services alongside a 22.2% real-terms cut in core spending power since 2010/11. 

The LGA survey reveals a worsening crisis with a growing number of councils being pushed closer to the financial brink. 

Exceptional Financial Support

An unprecedented 18 councils were given Exceptional Financial Support (EFS) from the government in February 2024 to help meet their legal duty to balance their books this year (2024/25). This includes councils being given permission to use capital funds raised through borrowing, or the sale of assets such as land and buildings, to plug funding gaps in their day-to-day revenue spending. 

While EFS can provide temporary financial relief, there is a risk that it could potentially load already struggling councils with further debt and costs in the future and/or undermine future capital programmes, the LGA warns.

Around one in 10 councils say they have discussed the possibility of requesting EFS from the Ministry of Housing, Communities and Local Government this year. A further 25% are likely to apply for EFS in 2025/26 and/or 2026/27 unless they receive additional government funding.

Among those councils with social care responsibilities, 44% said that they are likely to apply for EFS in 2025/26 and/or 2026/27 without additional government funding.

Services under pressure

Asked to identify their top five pressures, those authorities with social care responsibilities identified children’s social care (93%), adult social care (90%), SEND services (80%), school transport (65%), and homelessness (64%). For shire districts, homelessness (85%) and waste services (82%) emerged as the top concerns.

Cllr Louise Gittins, LGA Chair, says: “The unprecedented emergency support given to councils this year reveals the extraordinary funding emergency facing local government. As our survey shows, many more councils are being pushed into a precarious financial position.

“This is not just about numbers on a spreadsheet. Budget cuts needed to plug growing funding gaps will affect the most vulnerable members of society and the services our communities rely on every day. The autumn Budget must provide councils with the financial stability they need to protect the services our communities rely on every day.”

Tough decisions on the horizon

The survey also lays bare the tough decisions facing councils, with many expecting to have to make cutbacks to community services next year. This could mean reduced hours of operation, reduced frontline staff numbers, longer waiting times, a reduced or less frequent level of service provision, and/or increased fees and charges.

Two-thirds of councils say parks and green spaces will be affected alongside sport services (62%). Almost eight in 10 councils say services and support for disabled adults and/or older people are likely to face cutbacks. Service cutbacks are also likely in services and support for children, young people and families (63% of relevant councils).

Alison Ring OBE, FCA, CPFA, ICAEW Director of Public Sector and Taxation, says the survey findings highlight that strong public financial management and good governance are more important than ever in times of financial limitations.

“Councils deliver a host of critical services to local communities, while facing increasing financial difficulties. Local authorities need stability of funding, together with multi-year settlements so that they can invest and plan for the future,” Ring says.

Ahead of the autumn Budget the LGA has written to Chancellor Rachel Reeves on the need to stabilise council finances and protect vital services. The letter warns that any further local government funding cuts would be “disastrous” and is also signed by the County Councils Network, the District Councils’ Network, London Councils, SIGOMA (Special Interest Group of Municipal Authorities), Core Cities and Key Cities.