PublicSector
Feeling the squeeze
With growing demand for council spending, what should public sector finance teams be doing to find efficiencies?
Words: Rachel Wilcox Illustration: Andrew Nye
Against a backdrop of underfunding and soaring demand for social care, the financial challenges facing councils have never been greater, with the sector facing the lowest financial resilience on record.
A record 30 English local authorities were granted special permission to use emergency funding to avoid bankruptcy in the 2025-26 financial year. The Local Government Association warned in October 2025 that emergency government bailout agreements for councils are at risk of becoming ‘normalised’ as costs continue to outstrip available resources and push many to the financial brink.
Lean and mean
Henning Diederichs is senior technical manager in the public sector team at ICAEW. He says that years of cost-cutting means that many organisations are running as lean as they can be in terms of headcount and service provision. Prioritisation is key, he believes.
“A lot of local government expenditure is driven by statutory requirements, so it’s about managing the demand upstream,” Diederichs says. “For example, if there is a lot of health-related demand, how do services link up with local NHS providers or GPs so that councils don’t get lumbered with the costs further downstream?”
That requires planning, an ability to see the bigger picture and an aspiration to look to the longer term, Diederichs says. However, local government is still too reactionary in its approach, he believes.
Meanwhile, a lack of trust between central and local government and the way that translates to funding models is only serving to aggravate an already challenging environment, Diederichs says.
“Local government teams that have the people in place to bid effectively tend to be more successful and get a disproportionate amount of the grant money available, as opposed to, say, smaller entities or entities that are not bidding that often,” he says. “It’s not fair, it’s inefficient and it doesn’t allow local authorities to plan ahead.”
Some councils are already using AI for things like minute-taking or producing reports.
Image: Andrew Nye
Value for money
Getting the biggest bang for your buck and increasing the efficiency of services hinges on visibility over existing spend. Data analytics could underpin decisions about how local authorities should be spending their money. In reality, many councils rely on the accountant’s Swiss army knife – the spreadsheet – for their analytical capabilities.
Tools aside, what is important is understanding the cost impact of policy decisions, says Mike Sole FMAAT, deputy leader of Canterbury City Council. In January 2026, the council increased its council tax support to recipients of Universal Credit from a 90% discount to 100% discount, taking more than 4,000 households out of paying council tax. “We were spending so much time and money chasing difficult to collect debts, so the net cost isn’t too significant but it’s a huge benefit to those low earning households,” Sole explains.
In Canterbury, a two-year project to digitalise all the information relating to the council’s extensive commercial property portfolio is paving the way for more strategic and efficient use of its property assets. “Historically, it’s been fragmented, with paper records and agreements going back years,” Sole explains. “Bringing all of that together so we know when someone’s rent is up for renewal, we can see if it’s in line with market rates and we can see the terms of the lease. Having all of that in one place will make us more efficient. That’s a really good use of our time and resources.”
Digital opportunities
Much has been made of the public sector’s outdated IT infrastructure for crippling productivity and slashing public satisfaction in services. A report published by the government in January 2025 said the public sector was missing out on £45bn annual productivity savings due to its archaic technology.
The government’s AI Opportunities Action Plan hails artificial intelligence and digital technology as an opportunity to save taxpayers money and increase the efficiency of public services. However, widespread legacy systems and data inconsistencies across the public sector must be resolved before AI stands a chance.
But the rush to digitalise public services must not be at the expense of leaving people behind, Sole warns. “We have to accept that a lot of people are not tech savvy or may not have the ability or the resources to use digital methods,” he says.
At the same time, data privacy concerns and regulatory uncertainty are stalling AI adoption. “Some councils are already using AI for things like minute-taking or producing reports,” Sole says. “We’ve got to get smart about how we use it in other ways to save resources and do things better. But we’ve also got to be careful.”
Diederichs also advises local authorities to proceed with caution on AI as a means to drive efficiency. He says: “Where do I see AI? Maybe for modelling of future demand using demographics and economic factors and better predicting where future pressures will materialise. But, at this stage, we need to get the basics right first.”
In fact, councils are falling at the first hurdle with lax contract management that fails to ensure that suppliers deliver the products and services that councils have paid for. “That doesn’t require sophisticated data, it requires having the governance in place to ensure that you follow up on those contracts,” Diederichs says.
First principles
Sole says the fundamentals of good financial management will also stand councils in good stead in the current environment. He adds: “Restructuring debt and questioning the need to borrow if you’ve got reserves. We’re looking at those sorts of things a lot more closely.”
For finance teams, having the right calibre of people with the right level of experience and skills, especially at that management level, holds the key to navigating the current difficult environment. “You want good leadership to inspire teams to make the best of a sub-optimal situation,” Sole says.
Similarly, collaboration and sharing of best practice across local government is incredibly helpful, Sole believes. “A lot of the councils work very closely with each other and the finance officers share experiences of what’s working,” he says. “That’s really important.”
Sole is confident that the government’s move to simplify council structures and cut duplication will result in efficiency gains. However, he pushes back on the need for more guidance from central government to help local authorities achieve efficiencies. “I don’t think we need to be told what to do by central government,” he says. “We just need to be given the resources to do it.”
>> Key strategies for efficiency
