Funding gap for councils in England continuing to grow amid “inflationary storm”: LGA research

Councils in England face a funding gap of £4bn over the next two years, the Local Government Association has claimed. 

This is a £1bn increase since the LGA’s initial analysis in July “as cost and demand pressures continue to rise”.

The research – published ahead of the Autumn Statement next month – also indicates that by 2024/25 cost and demand pressures will have added £15bn (almost 29%) to the cost of delivering council services since 2021/22. 

The LGA said: “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% real terms cut in core spending power since 2010/11.”

In a submission to the Chancellor of the Exchequer, 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.

It added that the 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 argued. 

The Association suggested that neither council tax increases nor the use of financial reserves were solutions to long-term financial pressures.

The Government should work with councils on a long-term plan for greater funding certainty through timely multi-year settlements and more clarity on financial reform, the LGA added.

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."

Cllr Marland added: “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.”

The LGA estimated in July that councils were facing funding gaps of £2bn in 2023/24 and £900m in 2024/25. Following an updated inflation forecast from the Bank of England in August our analysis now shows funding gaps of £2.4bn in 2023/24 and £1.6bn in 2024/25. 

These gaps relate solely to the funding needed to maintain services at their current levels, the LGA said.