In the first article in this mini series, we focused on how councils raised the billions of pounds of funding they need to deliver vital local services. Here we delve deeper into exactly how that money is spent and the role of finance teams in ensuring it’s done in the most efficient and effective way.

How funds are spent

Data from the 2024-25 budgets estimates that total income and expenditure of England’s councils is £166bn (excluding social housing). From a spending perspective, the largest proportion of money, 37% (£61bn), goes towards funding services that councils are legally bound to provide, notably welfare costs. This is followed by education (27% or £44bn) and then police, fire and rescue (13% or £21bn). The remainder is split between other services, such as culture, environment, planning, highways and transport, as well as central council services.

For all of these areas of council activity, finance teams have to work closely with the individual departments to manage budgets, find the most efficient working methods and facilitate decision-making. “Most councils have worked in constrained financial circumstances for a long time. Generally, they’ve become very good at driving operational efficiencies and helping departments maximise income and optimise costs,” says Wheatcroft.

Within each department, salaries and pensions account for a significant proportion of the budget. “Here, finance has a role to play in supporting union negotiations,” says Wheatcroft. “They may also get involved with initiatives to get the best performance out of staff, such as South Cambridgeshire’s four-day working week experiment.”

Finance will also work with procurement to help departments source external providers of goods and services. Various approaches are used, with some councils managing procurement internally and others forming joint buying partnerships with other councils or partnering with other bodies.

Partnerships

Partnerships form an increasingly important role in delivering goods and services. These can range from partnerships with other councils to share resources and costs to relationships with commercial organisations for outsourced services, such as leisure centres or commercial ventures. In addition, councils work with the NHS for social care and public health initiatives.

Transport is a particularly hot topic for consideration, with the new government introducing legislation in September 2024 to enable councils to manage and franchise their own bus services. “The Thatcher government removed control of bus services from most councils in the 1980s. Transport for London, part of the Greater London Authority, was one of the few exceptions. It has been able to franchise the services, organise the routes and set the fares. Now, this power is being extended to other councils,” explains Wheatcroft.

Infrastructure

Finally, councils play a significant role in managing their local community infrastructure and maintaining asset registers. “This includes public buildings and assets, such as depots. Then there are infrastructure assets, such as roads, street lighting and so on, which councils need to maintain,” says Wheatcroft.

Alongside the day-to-day management of these assets, finance teams play a key role in capital procurement, such as sourcing construction teams to build a bypass or large-scale road resurfacing projects. “Capital procurement is particularly challenging for councils, and often larger projects take a long time,” states Wheatcroft. “In an ideal world, you would just get it done, but in the world of public finance, there may not be the budget to complete a project in one financial year.”

A looming challenge in this capital infrastructure space is the expiry of private finance initiatives (PFI) contracts, which were long-term agreements for managing public sector infrastructure. Many are now coming to an end and councils face decisions about managing these assets going forward. “Councils may bring management back in-house, or they may roll on service aspects of the contract. Whichever path is taken, it's another stretch for the finance department,” says Wheatcroft. 

Council funding and financing is a complex and multi-faceted subject. The status quo has changed dramatically over the last decade; council finance teams have had to adapt as central government funding has fallen and greater emphasis placed on external revenue raising. The pace of change shows no sign of slowing down, and finance teams will be integral to helping councils navigate the challenges and embrace the opportunities.