Council Finances
COUNCIL FINANCES
The local authority funding crisis in 60 seconds...
A new state-of-the-nation report reveals the impossible challenges faced by council finance teams.
How deep are the financial problems?
A new report, The State of Local Government Finance in England 2024, paints a stark — and unprecedented — picture of local authority finances.
- Over half of local authorities in England expect to issue a Section 114 notice — declaring effective bankruptcy — within five years, with 9% at risk in the coming year.
- Confidence in the financial sustainability of councils has plummeted from 14% in 2023 to a mere 4% in 2024.
- Inflation and the cost of living crisis are cited as major challenges by over 90% of respondents.
Councils have frequently complained they are underfunded. But this report argues that the situation has reached crisis point. Those trying to balance the books have to consider deeply unpopular actions to survive.
- 90% of councils are raising council tax, while the same proportion are increasing fees and charges.
- Two-thirds are forced to cut spending on services, leading to costlier services with reduced availability for residents.
Resilience
Of councils don't believe their finances are sustainable.
Bankruptcies
Of councils expect to declare effective bankruptcy this year
Five-year picture
Of councils expect to declare effective bankruptcy within five years.
Is poor financial management to blame?
The LGIU report says even councils with good financial governance are now at risk.
Systemic and structural factors are now affecting the vast majority of authorities across the UK, the report found. As a result, finance teams are overstretched and in a state of continuous crisis management.
“It is no longer possible to ignore or misunderstand the problems local government faces, they are undeniable,” LGIU chief executive Jonathan Carr-West said. He added: “this report, for the first time, demonstrates how widespread councils’ desperate funding situation is. It is impossible to deny there is a structural funding issue.”
The report also identified that financial resilience among councils is at an all-time low, after more than half of respondents drew on their reserves this financial year and plan to draw on them again in the upcoming year. Just 4% of respondents said they felt confident about their organisation’s finances.
One respondent told the LGIU: “The situation is catastrophic and is posing an existential threat to local government.”
What does AAT think?
Jonathan Gorvin, AAT’s Executive Director of Strategy and Compliance, commented:
“Our members working in local authorities in England have been on the front line of trying to make a difficult complex funding landscape work, and we recognise and support the great work and value they bring in creating more efficient and effective councils, ”
Attracting and retaining talent is hard for finance teams in such challenging circumstances and other critical professions.
A report from the Social Market Foundation (SMF), in partnership with the Chartered Management Institute (CMI), confirms this.
It found low morale and an inability to attract and keep talented staff is impacting local governments’ ability to deliver services to their communities.
What could fix this?
The overwhelming majority of councils surveyed favour multi-year funding settlements from central government, ending competitive bidding for additional funding and retaining 100% of business rates generated in their jurisdictions.
Another survey respondent highlighted the urgent need for action: “Difficult decisions will need to be taken about what the role of local government is in future and how it will be funded, but trying to avoid making those decisions is now proving more damaging and risks more local authorities reaching a point of financial failure.”
Some believe local government funding will have to take place shortly after the election. If the next government doesn't tackle it early, it will risk seeing up to half the councils in England becoming bankrupt within its parliamentary term.
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