Government has a huge local government reform agenda, including finance and local audit systems, key social care services and an extensive reorganisation of local government structures; all happening at once. It is not clear whether local authorities will have the capacity to cope.

18 June 2025 sources: Committee of Public Accounts Local Government Financial Sustainability Thirty-First Report of Session 2024–25 and comments from the Chailr.

Local government finance is in a perilous state. Despite a real terms funding increase in central government grants, council tax and locally retained business rates of 4%, over the period 2015–16 to 2023–24, the amount per person fell over the same period. Funding has not kept pace with population growth, demand for services, complexity of need, or the rising costs of delivering services. As demand for targeted services such as social care, special educational needs, and temporary accommodation has grown, there has been a significant reduction in spending on commonly used discretionary services, such as street cleaning and lighting, parks and gardens, and leisure services. With exponential increases in demand for services they must provide, local authorities have less money for early intervention or preventative services, which can help reduce demand and deliver better outcomes for people. Yet government does not know if funding to local authorities is spent well, and there are signs that service quality is declining. At the same time local authorities’ ability to improve outcomes for people is made harder by having to navigate an overly complex funding system.

Local authorities fund their services from multiple sources including central government grants, council tax, locally retained business rates, commercial activities, sales fees and charges and their reserves. They spent over £72.8 billion in 2023–24, of which 58% went on adult and children’s social care. Some local authorities are spending as much as 80% of their budget on these services. Increases in national insurance contributions may have a significant impact on local service providers, particularly smaller charities. Yet neither the Ministry of Housing, Communities and Local Government (MHCLG) nor HM Treasury has assessed the impact.

With promised funding reforms delayed alongside rising demand, funding has not matched need nor local circumstances. Instead, MHCLG has implemented short-term and unsustainable approaches to keep local government afloat. Since 2020–21, 42 local authorities have received exceptional financial support from government to help manage financial pressures. Spending on special educational needs and disabilities (SEND) has outstripped the money available from the Department for Education (DfE) to pay for it. Local authority deficits from these overspends are expected to be between £2.9 billion and £3.9 billion a year by the end of 2027–28. The mechanism which allows local authorities to keep these deficits off their books is due to run out in March 2026 and without it, many local authorities are at risk of effectively going bankrupt.

Government has a huge local government reform agenda, including reforms to the finance and local audit systems, and key services such as adult and children’s social care, SEND and homelessness. This is in addition to extensive reorganisation of local government structures. With reforms all happening at once, it is not clear what transitional arrangements will be and whether local authorities will have the capacity to cope.

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Chair comment 

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said:  

“Our inquiry heard that the government is concerned about local authority finances. But the lack of urgent action to come forward with a plan to address the fast-approaching cliff edge for under-pressure authorities would seem to suggest it is comfortable with the current state of affairs as normalised background noise. Alarmingly, scrutiny of council finances can now provoke a sense of déjà vu, with the same unfixed issues seen over and over. We would urge the government to use the funding announced in this spending review as a starting point for the paradigm shift required. 

“However, even with concrete measures to put councils back on a proper long-term sustainable footing, once again the government seems not to have taken a holistic view of the butterfly effect of its other policies. To introduce major changes to national insurance without taking into account the likely effect on an already tottering local government sector is a major misstep. Similarly, aspirations for wide-ranging reforms seem to be unengaged with a reality in which local authorities do not have good and strong capacity to fundamentally change the way they work.  

“Our report gives a wide overview of the various and severe challenges that local government face – for the sake of everyone who relies on local authorities’ services, we hope decision-makers begin to take a similar overview in how policy is delivered.”