14th Feb 2025 06:37
(Alliance News) - A major opportunity to boost inclusive economic growth will be lost unless a looming GBP8 billion funding gap in council finances is not addressed in the forthcoming spending review, the UK government has been warned.
A new analysis highlighting the "vital role" councils play in the government's pledge to reform local services and improve living standards concludes that "impossible decisions" will be required on services people rely without urgent action by the chancellor.
In its submission to the Treasury ahead of the spending review later this year, the Labour-led Local Government Association, LGA, said councils would not be able to deliver on the government's priorities without "necessary financial headroom".
The analysis focused on the impact of not investing in "critical" everyday services people rely on, such as support for vulnerable adults and children with special educational needs, and providing school transport and temporary accommodation.
It found that if the current trend of rising costs coinciding with increasing demand for services continued, GBP21.4 billion would be added to the cost of delivering services by the end of 2028/29 – a 29.8% increase.
In this event, councils would collectively face a funding gap of GBP1.9 billion this year, rising to GBP4 billion next year in 2026/27, GBP6 billion in 2027/28 and GBP8.4 billion in 2028/29.
The LGA warning comes as 18 councils required exceptional financial support to balance their 2024/25 budgets, as they are legally required to do.
In response to an LGA survey, 25% of council chief finance officers said their authority had either already applied for financial assistance to support their budgets in 2025/26, or they expected to do so this year or next.
This was indicative of the growing financial emergency facing councils, the LGA said.
LGA Chair Louise Gittins said: "Councils hold the key to public sector reform which is a clear ambition of government. As leaders of their communities and major local employers, they must play a critical role in promoting sustainable and inclusive growth.
"We know that there are huge financial challenges ahead for government. However, sufficiently funding councils in the spending review would enable them to fully play their part in leading local growth priorities and unlock the full potential of their local people, businesses and places.
"Local government has made huge savings and efficiencies over the past decade and continues to innovate and transform services to get the best for residents and provide greater value for money. However, without adequate investment now we risk not being able to deliver crucial services that so many depend upon and our desire to help government fulfil its ambitions for the future are severely hindered."
The government has confirmed that the spending review, due to be announced by Chancellor Rachel Reeves on June 11, will set three-year department budgets.
This would be the first time in seven years that councils had received multi-year settlements.
Councils that have applied for financial support this year are expected to be notified of government decisions this month.
The local government financial settlement in 2025/26 provides access to more than GBP69 billion in funding this year – a 6.8% increase in cash terms compared to 2024/25.
Six councils, serving more than 2.5 million people, have been granted permission to increase council tax beyond the established annual threshold of 5%.
Bradford Council will be able to increase the levy by a further 5%, while Windsor and Maidenhead Council and Newham Council can all increase bills by 4%.
The remaining councils – Birmingham, Somerset and Trafford – have been granted a further 2.5% uplift beyond the threshold.
Announcing the move, Angela Rayner said challenges remained in the government's bid "to fix the broken [local government] system we inherited", and stressed the need to strike a balance between preventing councils experiencing "further financial distress" and the "interests of taxpayers".
The overall core spending power provided in financial settlement assumes that all other councils will increase council tax by 4.99% in 2025/26- which is the maximum level permitted without holding a local referendum.
By Jonathan Bunn, PA Political Reporter
Press Association: Finance
source: PA
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