Britain’s Local Authorities See Budget Shortfall of £6.2 Billion

Tom Rees and Philip Aldrick
·4-min read

(Bloomberg) -- Britain’s next government will immediately face a funding crunch in town halls after councils warned of a £6.2 billion ($7.9 billion) hole in their budget plans over the next two years.

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The Local Government Association said council budgets will be stretched to the “limit” after many administrations ran into financial trouble in recent years. It estimated that the cost of delivering services for English councils is up £15 billion since the 2021/22 fiscal year after budgets were squeezed by double-digit inflation and climbing demand for services, such as adult social care.

“A chasm will continue to grow between what people and their communities need and want from their councils and what councils can deliver,” said Kevin Bentley, senior vice chairman of the LGA.

The findings underscore the crumbling state of Britain’s public services as the main parties battle for votes ahead of the July 4 general election. The Institute for Government warned in another report that, alongside the crisis in local government, some public services are “on the brink of collapse.”

Prisons “are at crisis point” and hospital performance is “arguably the worst in the National Health Service’s history.” Court hearings are being delayed and prisoners being released early due to capacity limits but the measures will not stop the jails overflowing “soon after the election,” IfG said.

The warnings will feed into the election debate, with the Labour opposition and its allies saying the Conservative government has created the crisis by underfunding government departments and local councils. The International Monetary Fund has estimated that £30 billion is needed to keep Britain’s public services functioning.

“Councils are facing an existential crisis because of years of severe government underfunding,” said Mike Short, head of local government for the union Unison, which represents workers in schools, the NHS and police. “Authorities have been forced to sell off buildings, open spaces and other prized assets, and cut thousands of jobs. But still their books won’t balance.”

The looming crisis will put the next government under pressure as a recent surge in debt and a historically high tax burden offer little room to borrow or raise income to meet spending demands. Labour leads the Rishi Sunak’s Conservative government in polls but will face calls for more money for defense, justice, the NHS and public sector pay if it wins.

The LGA estimates England’s authorities face a funding gap of £2.3 billion in 2025/26 and £3.9 billion in 2026/27. The figures lay bare the challenge facing a new government in resolving a financial crisis that is sweeping the sector and pushing some into bankruptcy.

Council leaders believe they will need to be a post-election reckoning over their funding model after facing large cuts to their central government grants since 2010. However, the issue of council finances is yet to feature in the election campaign despite three local authorities — Birmingham, Nottingham and Woking — effectively declaring bankruptcy by issuing section 114 notices last year. The sector has warned that more 114 notices are likely unless action is taken.

Separate analysis by the Institute for Fiscal Studies found that funding for councils has plunged by almost a fifth on a per resident basis with further cuts penciled in. It warned that current spending plans suggest “another round of cuts” to government funding for councils ahead.

Its analysis found that core funding for English councils is down 9% in real terms since 2010/11 — equivalent to a 18% cut per resident. It said increases in funding in the most recent parliamentary term were not enough to offset cuts made by previous Tory governments since 2010.

It also found that councils are increasingly reliant on council tax after reductions to central government grants. Council tax makes up just over half of funding compared to 36% in 2010/11.

“Like most public services that saw their budgets squeezed in the 2010s, the more recent increases in funding have not undone these previous cuts,” said Kate Ogden, a senior research economist at the IFS. “Councils are still very much feeling the financial effects of the late 2000s Global Financial Crisis – 15 years later.”

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