Rachel Reeves warned one in FOUR councils will need emergency government bailouts

One in four councils in England say they are likely to have to apply for emergency government bailout agreements to stave off bankruptcy in the next two financial years (2025/26 and 2026/27), a stark new survey by the Local Government Association (LGA) has revealed. It comes as a warning to Labour Party chancellor Rachel Reeves ahead of the Autumn Budget.

LGA: local councils are facing a crisis

The findings are from an LGA survey of council chief executives. The LGA is calling on the Chancellor to take immediate action in the Autumn Budget to stabilise council finances and avoid another hammer blow being delivered to local services.

Alongside adequate government funding to sustain the vital services that our communities rely on every day, the LGA wants to work with government to ensure councils receive multi-year finance settlements and a cross-party review is set up into how the local government funding system should be reformed.

An unprecedented 18 councils were given Exceptional Financial Support (EFS) from the Government in February to help meet their legal duty to balance their books this year (2024/25).

This includes them being given permission to use capital funds raised through borrowing, or the sale of assets such as land and buildings, to plug funding gaps in their day-to-day revenue spending. While this approach can provide temporary financial relief, there is a risk that EFS could potentially load already struggling councils with further debt and costs in the future and/or undermine future capital programmes.

However, with councils in England already facing a funding black hole of more than £2 billion next year, the LGA survey reveals a worsening crisis with a growing number of councils being pushed closer to the financial brink and likely to need EFS. It shows that:

• Around one in 10 councils this year say they have discussed the possibility of requesting EFS from the Ministry of Housing, Communities and Local Government.
• 25% are likely to apply for EFS in 2025/26 and/or 2026/27 without additional government funding.
• 44% of councils with social care responsibilities said that they are likely to apply for EFS in 2025/26 and/or 2026/27 without additional government funding.

Inflationary pressures

It comes as councils continue to face inflation and wage pressures alongside rising demand for services. The LGA has highlighted the particular demand and cost pressure challenges in children’s and adult social care, special educational needs and disabilities, home-to-school transport and temporary accommodation.

Councils were asked to identify their top five pressures. Social care authorities identified children’s social care (93%), adult social care (90%), SEND services (80%), school transport (65%), and homelessness (64%). For shire districts, homelessness (85%) and waste services (82%) were top concerns.

The survey also lays bare the tough decisions facing councils with many expecting to have to make cutbacks to community services next year. This could mean reduced hours of operation, reduced frontline staff numbers, longer waiting times, a reduced or less frequent level of service provision, and/or increased fees and charges.

Two thirds of councils say parks, green spaces will be affected alongside sport services (62%). Almost eight in 10 councils say services and support for disabled adults and/or older people are likely to face cutbacks. Service cutbacks are also likely in services and support for children, young people and families (63% of relevant councils).

Local councils facing an unprecedented crisis

Cllr Louise Gittins, LGA Chair, said:

Councils are the backbone of communities. Every day they strive to protect vulnerable children and families, support our older or disabled loved ones to live independent lives, keep our streets clean and pothole-free and build affordable homes but this is becoming increasingly difficult.

The unprecedented emergency support given to councils this year reveals the extraordinary funding emergency facing local government. As our survey shows, many more councils are being pushed into a precarious financial position.

This is not just about numbers on a spreadsheet. Budget cuts needed to plug growing funding gaps will affect the most vulnerable members of society and the services our communities rely on every day.

The Autumn Budget must provide councils with the financial stability they need to protect the services our communities rely on every day.

Featured image via the Canary