UK (Parliament Politics Magazine) – A National Audit Office report warns that nearly half of England’s councils could collapse financially due to a £4.6bn deficit and delayed funding reforms.
The government’s fiscal watchdog warns that nearly half of England’s councils face bankruptcy unless urgent action is taken to address a £4.6bn shortfall linked to past Conservative policies.
What did the National Audit Office reveal about council funding?
A report by the NAO has issued a stark warning that rising demand for public services and persistent delays in local government funding reforms have pushed town halls into an unsustainable financial position.
The watchdog’s findings revealed the failure to address SEND funding for special educational needs and disabilities (SEND) as a major concern, warning that rising costs overwhelm existing financial resources.
The independent financial watchdog revealed that council funding has grown in recent years but failed to match growing demand and complex needs. The report further highlighted that after years of Conservative austerity, more councils have gone effectively bankrupt in the last three years than in the previous 30.
The NAO estimates a 7% increase in per-person funding by 2025-26. Despite this, the Local Government Association predicts that councils will still face a financial gap of up to £8bn by 2028-29.
What Did NAO head Say About Local Government Finances?
Gareth Davies, the head of the spending watchdog, stated,
“There have been repeated delays to local government finance reform and government can no longer resort to short-term solutions to support local authorities. Action to address this must resolve the systemic weaknesses in local government financial sustainability through a comprehensive, cross-government approach.”
Will ending the statutory override push councils to bankruptcy?
To ease financial pressure, the previous government implemented the “statutory override,” allowing councils to temporarily exclude SEND-related debts from their accounts, effectively concealing the financial strain.
the statutory override is scheduled to end in March 2026. By then, England’s councils are expected to face a staggering £4.6bn deficit, as mounting financial pressures push local authorities to the brink.
Why are councils cutting services despite funding increases?
Despite a 4% rise in funding from central government grants, council tax, and business rates between 2015-16 and 2023-24, reaching nearly £56bn. While per-person funding has dropped by 1% over the same period, highlighting financial pressures facing local councils.
Councils made substantial cuts to non-essential services, such as libraries and road maintenance, while prioritizing children’s and adults’ social care, which has surged to 58% of total spending.
Can the government’s £69bn settlement stabilize local councils?
To tackle local government challenges, ministers recently announced a £69bn financial settlement for the next financial year. This includes an extensive devolution scheme to reshape local government operations.
At the same time, a bailout was sanctioned for 30 councils, while six were permitted to impose council tax hikes beyond the 5% threshold.
What did the housing ministry say on council finances?
The Ministry of Housing, Communities and Local Government representative said,
“This government is under no illusions about the financial issues facing councils. That’s why we’re reforming the funding system and delivering improved public services across the country.”
Local councils are in England?
In England, some regions have a two-tier system: the Upper tier and the Lower tier.
Upper tier manages broader services while the other handles lower tier services. There are 317 councils in England:
- 21 County Councils (upper-tier)
- 164 District Councils (lower-tier)
- 32 London Boroughs (unitary)
- 36 Metropolitan Boroughs (unitary)
- 62 Unitary authorities (unitary)
- 2 Sui Generis authorities – City of London Corporation and Isles of Scilly (unitary)