The Local Government Association (LGA) has issued a stark warning that English councils are confronting a monumental funding deficit, projected to reach £2.3 billion by the 2025-26 fiscal year. The LGA’s analysis highlights a mounting risk of “systemic financial failure” for local authorities.
In a recent submission to the Treasury, the LGA attributed the widening funding gap to escalating costs, wage pressures, and heightened demand for public services. The situation is expected to deteriorate further, with the deficit anticipated to expand to £3.9 billion by 2026-27.
The dramatic rise in homelessness service costs, which have surged by £604 million—an increase exceeding 75%—since 2019-20, is a significant contributor to this financial strain. This spike is largely due to housing shortages and unprecedented expenditure on temporary accommodations.
The LGA’s report also underscored the growing dependence of councils on exceptional financial assistance from the government, with 18 councils relying on such support to balance their budgets for the upcoming 2024-25 period. Additionally, local authorities have increasingly depleted their financial reserves, which have dwindled by £2.8 billion between 2022 and 2024. Notably, 42% of councils drew from their reserves in both the 2022-23 and 2023-24 fiscal years.
The association has estimated that councils have implemented approximately £24.5 billion in service cuts and efficiencies over the past two years. The LGA warns that any further reductions in funding could push even more councils towards financial collapse, impairing their ability to provide essential local services.
The report also highlights challenges in recruiting and retaining staff, exacerbated by pay disparities between local government and other sectors. Over 90% of councils are reportedly struggling to fill critical roles.
In response to these challenges, the LGA has urged the government to deliver a substantial and sustained increase in overall funding for local authorities. The association advocates for multi-year financial settlements and more flexible grant funding, rather than the current system of ringfenced allocations.
Louise Gittins, Chair of the LGA, emphasized the crucial role of councils in advancing government priorities, noting, “Councils are pivotal in delivering the government’s objectives. However, the threat of financial failure across local government is escalating to a systemic level.”
Gittins called for immediate financial support and comprehensive funding reform to safeguard local services and enable councils to contribute effectively to government agendas, including social care, housing, economic development, and climate action.
The government has been approached for comment on the LGA’s concerns.
On a related note, London Councils reported a similarly dire financial outlook, projecting that boroughs in the capital will need to cut £170 million from their Housing Revenue Accounts over the next four years. Additionally, a cross-party coalition of over 100 councils recently proposed a reform roadmap addressing local authority financing and the Right to Buy scheme.
