Councils in England face a funding gap of £4 billion over the
next two years the Local Government Association reveals
today.
This is a £1 billion increase since the LGA’s initial analysis in
July as cost and demand pressures continue to rise.
New LGA analysis - published ahead of the Autumn Statement next
month - also shows that by 2024/25 cost and demand pressures
will have added £15 billion (almost 29 per cent) to the cost of
delivering council services since 2021/22.
Councils are facing an “inflationary storm” which is adding
unsustainable costs onto council budgets. Some councils have
warned these costs are threatening their financial
sustainability, not least because councils have already absorbed
a 27 per cent real terms cut in core spending power since
2010/11.
Many councils are working proactively with each other to share
and transform their services to ensure they continue to deliver
high quality services to residents.
In its submission to the Chancellor, the LGA said the Government
needs to provide immediate funding so councils can deliver the
2023/24 budgets they set this year, and meet ongoing cost and
demand pressures.
Government also needs to ensure that councils have sufficient
resources to set balanced budgets next year without having to
make drastic cuts to services.
Additional resources cannot come solely from hard-pressed council
taxpayers, the LGA said.
Council tax increases are not the long-term solution to the
financial challenges facing councils particularly during a
cost-of-living crisis. In addition, increases in council tax
raise different amounts of money in different parts of the
country and it would fall short of the sustainable long-term
funding that is needed.
The LGA is clear that using financial reserves to plug
funding gaps is also not a solution to the long-term financial
pressures that councils face. Councils hold reserves so they
can plan for the future and deal with known risks. Reserves can
only be spent once and will rapidly be depleted if used to meet
councils’ unfunded day-to-day spending.
Councils also want to work with the Government on a long-term
plan for greater funding certainty for councils through timely
multi-year settlements and more clarity on financial
reform.
Cllr Pete Marland, Chair of the LGA’s Resources Board,
said:
“Councils remain firmly in the eye of the inflationary storm and
severe funding and demand pressures mean that council
finances are under pressure like never before.
“None are immune to the risk of running into financial difficulty
and others have already warned of being unable to meet their
legal duty to set a balanced budget and are close to also having
to issue Section 114 notices.
“The easy savings have long since gone. Councils are being faced
with tough decisions about cutting valued services, increasing
council tax and fees and charges during a cost-of-living
crisis.
“We urge the Chancellor to act to address the acute financial
challenges faced by councils. This is vital to protect the local
services our communities rely on every day but also to reduce
costs falling on other public services and support the delivery
of key government agendas on areas such as housing, levelling up
and climate change.”
Notes to editors
- The LGA estimated in July that councils were facing funding
gaps of £2 billion in 2023/24 and £900 million in 2024/25.
Following an updated inflation forecast from the Bank of England
in August our analysis now shows funding gaps of £2.4 billion in
2023/24 and £1.6 billion in 2024/25.
These gaps relate solely to the funding needed to maintain
services at their current levels.
While annual average inflation peaked at around 10.0 per cent for
the economy as a whole and is forecast to fall to an annual
average of around 6 per cent in 2023/24, this is not necessarily
the case for all councils. Because councils purchase goods and
services through annual contracts, these contract prices
will often be uprated in 2023/24 based on inflation over the
preceding 12 months. For these contracts councils will experience
peak inflation in 2023/24.
- The LGA’s Autumn Statement submission is accompanied by
appendices on three key areas of council activity that are
experiencing sharp financial and/or demand pressures.
