Councils warn Chancellor of widespread bankruptcies without funding boost

Councils say they are “staring down the barrel” financially, as new analysis suggests they will be limited to being “little more than care services” by the end of this Parliament without a boost to resources.

In another dire warning of the perilous state of local government finances, the study found that without extra funding, ministers will have to “radically rethink” councils’ statutory responsibilities.

If they don't, potentially six in ten county and unitary authorities in rural areas face declaring bankruptcy by 2028, the study says.

Ministers have repeatedly warned of difficult choices because of a £22 billion black hole they say officials have discovered in the public finances.

This has fuelled concerns that Chancellor Rachel Reeves could stick with spending plans which would provide limited relief for under-pressure councils when she delivers her Budget on October 30.

In its submission to the Budget and Spending Review, the County Councils Network (CCN) cited analysis showing all local authorities in England combined would experience a cumulative £54 billion funding shortfall over the five-year period of this Parliament, based on current projections.

For the 37 CCN councils, which serve nearly half of the population, the funding gap amounted to £20.3 billion.

The huge shortfall was identified as being largely driven by rising demand and costs in just three service areas: adult social care, children’s services and home-to-school transport for children with special education needs and disabilities (Send).

Together these services were found to account for 83% of the total increase in projected costs by 2030.

The analysis showed annual 3% increases in council tax would reduce the overall cumulative deficit to £38 billion over five years, but the CCN said the government cannot rely on this approach as it would still require “undeliverable” reductions to services.

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Despite annual council tax increases over the past decade, the CCN said councils have been forced to prioritise services they are legally required to provide.

This has coincided with significant reductions in spending on key services such as libraries, buses, road maintenance, children’s centres and youth services.

However, with many councils now providing close to statutory minimum levels in services, the CCN said a continuing focus of resources on care services would “not be enough” and threaten “their ability to remain solvent unless their statutory obligations change”.

The CCN said county and rural unitary councils are facing the largest deficits over this Parliament.

A CCN survey of chief executives at these authorities found that without extra funding at a time when the profile of statutory responsibilities remains the same, 16 councils could be at risk of declaring effective bankruptcy by 2026-27, with a further six expected to follow in 2027-28. This amounts to 60% of the CCN’s members.

This scenario would have a significant impact on the delivery of frontline services to more than 16 million people in England, the CCN added.

Barry Lewis, CCN finance spokesman and vice-chairman, said many of the 800-plus services provided by councils are “essential” to residents, and authorities of “all shapes and sizes” face a “bleak financial outlook”.

He added: “To meet all their projected service pressures, councils are staring down the barrel of a £54 billion funding black hole.

“While council tax rises can reduce this deficit, government cannot rely on this alone and local authorities would still be left to find billions each year.

“With the funding gap fuelled by rising costs in adult social care, children’s services and Send transport, councils will have to divert even more funding to prop up these services, leaving councils providing little more than care services by the end of this Parliament.”

Mr Lewis called for a “substantive injection of resources” to prevent the “unpalatable trade-off” of radically re-thinking councils’ statutory responsibilities or face bankruptcies.

He said this must be followed by “deep and fundamental reform to address demand and market failures driving costs in children’s services, special educational needs and adult social care”.

“This needs to happen urgently with a plan to be actioned within the next 18 months, otherwise we risk undermining the wide-ranging purpose of local government and derailing the government’s mission-led approach to public-service reform and greater devolution to councils,” Mr Lewis said.

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A government spokesperson said: “We will help support people to live an independent, dignified life and give every child the best life chances possible.

“Despite the inheritance left, we will work with local government to fix the foundations and get them back on their feet by doing the basics right, including providing more stability through multi-year funding settlements, ending competitive bidding for pots of money, and reforming the local audit system.

“We will set out more detail at the next spending review and local government finance settlement but stand ready to speak to any council that is experiencing financial difficulties.”

A key driver of rising costs for adult social care is the increasing number of working age adults with disabilities living longer with more complex needs, and a larger number of people with mental health needs who require support.

The Local government Association has highlighted an increase in the number of high-cost children’s social care placements provided by private companies, with the number of placements costing £10,000 or more increasing from 120 in 2018/19 to 1,510 in 2022/23.

The substantial growth in the number of children requiring transport to school in recent years is said to have been largely driven by an increase in the number of eligible for education, health and care plans because of their needs.