Councils warn of £8bn funding gap over next four years
English councils have warned that they could face a funding gap of more than £8bn by 2028-29 ahead of the government’s Spending Review on 11 June.
The Local Government Association (LGA) said that without more financial headroom from central government, councils will have to make “impossible choices” on what services they can provide.
At the Spending Review, the Treasury will set three-year day-to-day budgets from 2026-27 to 2028-29 for government departments, including the Ministry of Housing, Communities and Local Government (MHCLG), which oversees councils and affordable housebuilding.
The LGA welcomed the government’s commitment to provide councils with a three-year settlement compared to previous one-year settlements.
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However, it cautioned that councils remain “under severe financial strain” due to long-standing funding reductions and cost and demand pressures that are putting many “towards the financial brink”.
New costs associated with the employer National Insurance contribution changes, announced at the Autumn Budget, alongside demographic change, inflation, and rises to the National Living Wage are also exacerbating the challenge.
If current cost and demand trends continue, the trade body said, by the end of 2028-29 cost and demand pressures would add £21.4bn to the cost of delivering council services since 2024-25. This is 29.8% in additional service costs.
If these new pressures and funding streams are taken into account, councils would face a £1.9bn gap in 2025-26, rising to £4bn in 2026-27, £6bn in 2027-28 and £8.4bn in 2028-29.
Last year, 18 councils required exceptional financial support to set their 2024-25 budgets. Of 105 chief financial officers who responded to an LGA survey in January, 25% said that their council had either applied for exceptional financial support for their 2025-26 budget or that they expected to do so in the following two years.
Louise Gittins, chair of the LGA, said: “We know that there are huge financial challenges ahead for government. However sufficiently funding councils in the Spending Review would enable them to fully play their part in leading local growth priorities and unlock the full potential of their local people, businesses and places.
“Local government has made huge savings and efficiencies over the past decade and continues to innovate and transform services to get the best for residents and provide greater value for money.
“However, without adequate investment now, we risk not being able to deliver crucial services that so many depend upon and our desire to help government fulfil its ambitions for the future are severely hindered.”
An MHCLG spokesperson said: “For too long councils have suffered from short-term solutions, which is why we are working hand in hand with councils to reform this outdated system and fix the foundations.
“Future funding decisions are a matter for the upcoming Spending Review.”
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