Key Takeaways:
- Local authorities in England and Wales are facing a financial crisis, with 29 councils already unable to meet their financial obligations without special government loans.
- Council leaders expect steep cuts to their funding, which will prevent them from balancing their books and providing basic services to citizens.
- The government’s funding formula, to be published on December 17, is expected to leave many councils with high levels of need worse off.
- Labour councils expect to make difficult decisions before agreeing a budget for 2026-27, including freezing council tax bills and closing deficit gaps through asset sales.
- The funding crisis is attributed to a decade of chronic public sector underfunding, with local authorities facing impossible choices in the face of spiralling costs for social care and temporary housing.
Introduction to the Funding Crisis
Local authorities in England and Wales are warning that their finances are at "breaking point" due to a funding crisis that is expected to worsen in the coming years. With 29 councils already unable to meet their financial obligations without special government loans, council leaders are bracing themselves for steep cuts to their funding. The government’s funding formula, which is set to be published on December 17, is expected to leave many councils with high levels of need worse off. This has led to concerns that more councils will fall into bankruptcy, leaving citizens without access to basic services.
The Impact of Funding Cuts
The funding crisis is having a significant impact on local authorities, with many struggling to balance their books. Norfolk county council’s deputy leader for finance, Andrew Jamieson, said that the number of local authorities unable to meet their statutory obligations was likely to grow when the government publishes its new funding settlement. He warned that the money was not there to meet the demands of citizens, and that councils were being forced to make impossible choices. The Local Government Association, which represents councils across England and Wales, has called for a significant increase in overall funding to stem the emerging risk of system-wide financial failure.
The Government’s Response
The government has agreed a three-year deal for local councils as part of a spending review in the summer, but the formula used to allocate the funding has yet to be published. The government has said that the outcome of its "fair funding review 2.0" will help councils cope with high levels of deprivation. However, council leaders are skeptical, with Jamieson warning that revisions to the funding formula would leave many councils with high levels of need worse off. Labour insiders have also criticized the funding changes, saying that they favor wealthier Conservative counties and districts.
The Consequences of Underfunding
The funding crisis is attributed to a decade of chronic public sector underfunding, with local authorities facing impossible choices in the face of spiralling costs for social care and temporary housing. Joanne Pitt, a senior policy adviser at the local authority accountancy body Cipfa, said that borrowing by local authorities had reached £1,500 per person and was on course to rise further. Most of the 29 authorities given exceptional financial support were rolling over the loans to stay afloat, she said. This has led to concerns that local authorities are not in a position to pay back loans, and that the situation will only worsen in the coming years.
The Impact on Councils
The funding crisis is having a significant impact on councils, with many being forced to make difficult decisions to balance their books. Hartlepool borough council has announced plans to freeze council tax bills, but still needs to close a £9m deficit. The council’s leader, Pamela Hargreaves, said that she wanted to balance the 2026-27 budget "in a way that does not increase the council tax burden on already hard-pressed families". Cornwall council is also expected to publish a budget for the 2026-27 financial year, which will show how the council has saved between £40m and £70m to control spiralling costs.
The Need for Clarity and Fair Funding
Council leaders are calling for clarity and a fair funding settlement to address the funding crisis. Mike Cox, the head of finance at Bournemouth, Christchurch and Poole council, said that uncertainty from central government was making a difficult situation worse. He warned that councils were left to choose between raising taxes, selling assets, and cutting essential services, and that the fair funding review appeared to be anything but fair. John Merry, the deputy mayor of Salford and chair of the Key Cities group of councils, said that councils were dealing with impossible choices in the face of spiralling costs for social care and temporary housing. He warned that half of boroughs could require emergency financial support by 2028 to avoid bankruptcy.