Concerns rise as potentially one-fourth municipal councils may face bankruptcy
Local government in England is facing a precarious financial position, with rising costs of essential, demand-led services like social care, special educational needs, and homelessness support putting significant pressure on councils.
According to a survey published by the Local Government Association (LGA), homelessness is a significant pressure for 64% of councils, while school transport is a top pressure for 65% of them. The survey also reveals that social care for children (93%) and adults (90%) is among the top pressures facing local authorities. Special educational needs and disability services are a significant pressure for 80% of councils.
The current state of local government finances is under strain, with funding sources such as council tax, business rates, and central government grants (totaling £31 billion in 2025/26, representing 45% of their core spending power) not sufficient to meet escalating service costs, which are forecasted to total £139 billion this year.
The financial shortfall is causing deterioration in service quality and leading to financial distress for many councils. In February, 18 councils were given Exceptional Financial Support (EFS) from the government, but the LGA predicts that the trend of local authorities declaring bankruptcy could continue into 2026 if the government doesn't provide sufficient support. One in ten local authorities have already discussed receiving emergency support with the Ministry of Housing, Communities and Local Government.
The EFS provided temporary financial relief but could overload struggling councils with further debt and costs in the future. Cllr Gittins, the LGA's chairs, warned that budget cuts needed to plug growing funding gaps will affect the most vulnerable members of society and the services communities rely on every day.
In response to these challenges, the government has proposed the "Fair Funding Review 2.0," aiming for implementation in the 2026/27 financial year. This review seeks to reform how central government grants are allocated to better reflect actual need, which will change funding for some authorities both positively and negatively. Meanwhile, the LGA is urging Chancellor Rachael Reeves to stabilize council finances in the upcoming Autumn Budget. The LGA's request includes a multi-year settlement and a review into changing the local government funding system.
Cllr Gittins states that the Autumn Budget must provide financial stability to protect essential services. She emphasized that councils are the backbone of communities and are finding it increasingly difficult to protect vulnerable children and families, support older or disabled loved ones, keep streets clean and pothole-free, and build affordable homes. Two thirds of councils claim parks and green spaces will be affected alongside sport services (62%).
The LGA's survey findings were published as more than 1,500 councillors, council leaders, senior officers, and politicians gather for the start of the LGA's Annual Conference in Harrogate. In related news, tighter restrictions have been placed on 'buy now, pay later' schemes. The conference provides a platform for discussions on the pressing issues facing local government and potential solutions to address the ongoing funding crisis.
- The financial strain on local government in England, exacerbated by rising costs of essential services such as homelessness support and social care, has prompted the Local Government Association (LGA) to urge Chancellor Rachael Reeves for a multi-year settlement and a review into changing the local government funding system in the upcoming Autumn Budget.
- Cllr Gittins, the LGA's chair, emphasized that the Autumn Budget must provide financial stability to protect essential services like housing, as two-thirds of councils claim parks and green spaces will be affected alongside sport services.
- Business rates, council tax, and central government grants, which together amount to £31 billion in 2025/26, represent 45% of local authorities' core spending power but are not sufficient to meet the escalating costs of services, particularly in areas like special educational needs and disability services, which are a significant pressure for 80% of councils.
