One out of every four local councils could face financial collapse
Local government in England is grappling with a severe financial crisis, with 80% of councils citing special educational needs and disability services, social care for children and adults, homelessness, school transport, and parks and green spaces as top pressures, according to a survey published by the Local Government Association (LGA).
The financial crisis is characterised by severe funding shortfalls, increasing costs for statutory services, and a broken fiscal system where local authorities lack sufficient control and flexibility over their finances. This situation has been exacerbated by widespread cuts to preventative services, leading to growing financial fragility and risks of insolvency.
At the heart of this crisis is the outdated, regressive nature of council tax, which fails to correspond with the quality and scope of local services. The current system breaks the link between what residents pay and what services they receive. Additionally, excessive central government control, with ringfenced funding and prescribing how local funds are spent, limits councils’ autonomy.
In response, the LGA, alongside groups like SOLACE and CIPFA, is calling for urgent reforms. Their proposed measures include transforming the local government finance system by devolving fiscal powers to local authorities, introducing new forms of local taxation such as tourist levies, and replacing council tax with a fairer, more progressive system.
The LGA also advocates for replacing ringfenced funding with an outcomes-based accountability framework, where councils are judged on performance against agreed goals rather than strict spending controls. Improving the local audit system to provide timely warnings of financial problems and reducing burdensome compliance costs not suited to public sector entities is another key proposal.
The LGA urges central government and HM Treasury to prioritise greater fiscal devolution to empower local authorities with genuine financial responsibility and control. Cllr Louise Gittins, the LGA chair, stated that councils are the backbone of communities and are struggling to protect vulnerable children and families, support older or disabled loved ones, keep streets clean, and build affordable homes.
Cllr Gittins also emphasised the need for a multi-year settlement and a review into changing the local government funding system in the upcoming Autumn Budget. She urged Chancellor Rachael Reeves to stabilise council finances to protect essential services.
The survey reveals that an unprecedented 18 councils were given Exceptional Financial Support (EFS) from the government in February. One in ten local authorities have already discussed receiving emergency support with the Ministry of Housing, Communities and Local Government. Councils are warning of cuts to vital public services due to the worsening crisis.
The LGA warns 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. The EFS provided temporary financial relief but could overload already struggling councils with further debt and costs in the future. The trend of local authorities declaring bankruptcy could continue into 2026 if the government does not provide sufficient support.
As the LGA's Annual Conference in Harrogate kicked off, more than 1,500 councillors, council leaders, senior officers, and politicians gathered to discuss these pressing issues. The LGA's call for reforms echoes the urgent need for action to address the financial crisis facing local government in England.
The Local Government Association (LGA) is advocating for a fairer, more progressive system to replace the outdated council tax, as the current system fails to correspond with the quality and scope of local services. Furthermore, the LGA is proposing changes in the local government finance system, such as devolving fiscal powers to local authorities and introducing new forms of local taxation to alleviate the severe financial crisis faced by local government.
