More than half (51%) of senior council figures warn their councils are likely to go bust in the next parliament unless local government funding is reformed, reveals a new report from the Local Government Information Unit (LGIU), with 9% of council respondents saying they were likely to declare effective bankruptcy in the next financial year – representing 14 unique councils. A mere 4% of respondents had confidence in the sustainability of local government finance and only 6% are happy with central government’s performance on understanding the scale of the problem facing council finances.
The 2024 State of Local Government Finance report, which anonymously surveyed council leaders, chief executives, chief finance officers and cabinet members for finance, found nine in ten plan to increase fees on areas such as parking and environmental waste, and the same proportion plan to raise council tax, with one fifth (21%) continuing to sell publicly-owned assets. Worryingly, more than half of respondents drew on their reserves this financial year (2023-2024) and plan to draw on them again in the upcoming year.
Published annually since 2012, this year’s survey found nearly one third of council respondents (31.9%) plan on cutting parks and leisure, with another third (30.6%) cutting arts and culture and a similar proportion slashing business support (30%). One in ten will cut SEND services, 11.9% will cut children’s care services and 16.2% will slash adult social care.
For councils with responsibility for social care, children’s social care is by far the most urgent short term pressure, and adults and children’s social care together make up the most serious long-term pressure. Among councils without these responsibilities, housing and homelessness is the most serious short-term and long-term pressure, with environment and waste a close second place for long-term pressure.
High inflation alongside rising need for council services, has compounded the impact of central government funding cuts. Even for councils that manage to balance the books, there are concerns that some services they provide may fall below legal standards, which will continue unabated without costly legal challenges.
The LGIU believes there are several solutions to the local government funding crisis that, crucially, don’t add more pressure on the taxpayer. Sharing surplus funds between wealthier and more deprived councils while allocating central government funding to areas based on need rather than bidding are two of four low-cost solutions to the local government funding crisis, proposed in Learning from local government finance across the world.
These are popular options for reform: multi-year financial settlements were favoured by 97% of respondents, ending competitive bids for funding and 100% business rates retention by three-quarters. Yearly finance settlements incentivise short-term financial planning, such as the reduction in preventative services to make ends meet annually, even if these end up costing more in the long term.
The 2024 State of Local Government Finance report is part of the wider work of the LGIU’s Local Democracy Research Centre, which was set up by the LGIU to investigate the things that matter to our members and to local government around the world.
A full copy of the 2024 State of Local Government Finance report can be found here.
Jonathan Carr-West, Chief Executive, LGIU, said: “We have long-warned that a lack of funding combined with inflation and rising need for adult and children’s social care, homelessness, and SEND services has pushed councils to the brink.
This year’s State of Local Government Finance report reveals the desperate, ruinous financial situation councils find themselves in. Cutting services, borrowing more money and spending reserves year after year is completely unsustainable. Citizens are being failed.
With over half of councils warning us they are at risk of bankruptcy within the next parliament, it is no longer possible to blame individual governance issues. There clearly is a systemic issue and rather than bunging local government panicked injections of cash, whoever wins the next election will need to reform the entire system, bringing back multi-year settlements based on an area’s need and developing new ways of revenue raising.”
