Rising pressures threaten councils’ financial sustainability
December’s provisional local government finance settlement included some very important and positive steps for councils in England.
The settlement delivers additional funding for councils and a multi-year settlement, offering greater certainty than the year-by-year approach we have lived with for too long.
The LGA welcomes the principle of simplifying and consolidating specific grants, as well as the commitment to reduce competitive bidding – something we have long called for.
And there is some welcome investment in priority areas, including social care, prevention, and support for children and young people with complex needs.
However, this settlement does not provide the increase in funding councils need to ensure their financial sustainability and protect services. Much of the new funding will be absorbed simply by cost pressures already locked into the system, workforce and commissioning costs, and rising demand – particularly in homelessness and temporary accommodation services, adult and children’s social care, special educational needs and disabilities (SEND), and home-to-school transport.
In many cases, the new funding will only allow councils to stand still, rather than improve services or invest in prevention, while some areas will receive real-term funding cuts in 2026/27.
Standing still is not enough when need continues to grow.
Councils have not reached this point because of poor financial management. Over the past decade and a half, local government has shown resilience, innovation and discipline in managing financial pressures – making billions of pounds of savings and efficiencies, redesigning services, sharing back-office functions and embracing digital transformation.
But there comes a point when resilience becomes fragility – with more councils being forced to rely on exceptional financial support from government simply to set a balanced budget and keep essential services running.
We are seeing the increasing pressure on local government financial sustainability, and councils of all political colours, all types and across all geographies are warning that this can’t go on.
This is not a failure of ambition or capability. It is the result of a funding system that has not kept pace with demand, complexity or inflation.
What councils need is a reformed funding system that offers flexibility and enables them to make decisions based on local circumstances.
The LGA is working constructively with government departments, using clear evidence from councils, to make the case that:
- multi-year settlements must come with real-terms funding increases
- funding must increase to reflect real levels of need
- no council should be pushed to the brink simply to deliver statutory services.
We’ll also continue to press for proper recognition of cost and demand-led pressures, and for greater investment in preventative services, not just crisis response.
The LGA continues to encourage the Government to undertake a cross-party review of options to improve the wider local government finance system. This has to include a review of council tax, alongside other council funding sources, and whether business rates retention represents a viable future funding model.
The Government’s wider reform agenda – including to SEND and adult social care – also presents an important opportunity to reset the system. We welcome these opportunities, but they must go hand in hand with a recognition of the financial realities councils face. Otherwise, we risk redesigning services without giving councils the resources they need to make those reforms work on the ground.