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Local authorities across England and Wales face a funding gap of £2bn or more next year as inflation eats into the ability of many to provide basic services without dipping into reserves, according to their representative body.
Analysis released on Tuesday by the cross-party Local Government Association, which meets for its annual conference this week, provides an alarming picture of rising costs and diminishing services as councils struggle to balance the books in the wake of successive shocks.
The LGA estimated the extra cost to councils would exceed their core funding by £2bn in 2023-24 and £900mn in 2024-25, even if the rate of price rises falls in line with government forecasts to 2.9 per cent by the end of this year.
If inflation remains higher, tracking the Bank of England’s more pessimistic outlook, local authorities would face additional costs of £740mn next year, and £1.5bn in 2024-25.
The analysis relates solely to funding needed to maintain services at current levels and does not include tackling the continuing crisis in the provision of adult and child social care, or addressing homelessness.
Pete Marland, Labour leader of the council in Milton Keynes and chair of the LGA’s resources board, said local governments were having to cut services to meet their legal duty to balance the books this year, and using reserves meant to mitigate risk to plug funding gaps.
“We are in an endgame where unless something changes in the medium- to long-term funding settlement, we start to see more and more councils taking more drastic action,” he said.
“This won’t just be around potholes that need to be filled, play areas that need maintenance and grass that needs cutting,” he added. “It will be around more fundamental things like children’s services and social care, and it will have knock on effects for the NHS.”
Two councils — Thurrock in Essex and Woking in Surrey — have in recent months been forced to announce section 114 notices, in effect declaring bankruptcy.
Both local authorities got into difficulties as a result of investment strategies that were designed to deliver additional revenues but instead left them with record deficits of £500mn and £1.2bn respectively.
Marland described Thurrock, Woking and a handful of other councils in similar trouble as “outliers”. Of the 340 district and unitary councils in England and Wales, about 20 were in sever financial distress, he said. Others had proved adept at managing cuts in the decade to 2020, when councils bore the brunt of government austerity budgets with funding slashed overall by £15bn, he noted.
Marland added, however, that councils of all political colours were now struggling to meet growing demand for the basic services they are legally required to deliver.
Local government officials were surprised when, in December last year, Rishi Sunak, prime minister, agreed a £59.5bn funding package for councils for 2023-24, representing a 9 per cent increase on the year before.
Joanne Pitt, head of local government policy at the Chartered Institute of Public Finance and Accountancy, which represents accountants working in the public sector, said inflation had eaten away at most of the benefits of the 9 per cent since.
“If you went back 10 years you had some give and take. Now they have given everything they have got to give so we are looking at really serious implications,” she said, adding that fundamental questions needed to be raised about what councils could be expected to deliver within the current funding framework.
Analysis in March by the County Councils Network, which represents the largest councils in England and Wales, said 2023 would be one of the most challenging financial years ever. It found that members would need to make at least £1bn in savings and use £350mn in reserves, even after raising council taxes, to balance the books.
“The government will look in the round at local government spending when finalising budgets at next year’s finance settlement, as we do every year to ensure councils can continue to deliver vital services,” a UK government spokesperson said.
“We have also provided multiyear certainty to local government, outlining spending over the next two years to allow councils to plan ahead with confidence.”