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English councils face ‘systematic financial failure’ as funding gap widens to more than £2bn, LGA warns
The Local Government Association (LGA) has warned that councils in England face a funding gap of £2.3bn in 2025-26, with a “growing risk of systemic financial failure”.
An analysis by the LGA has shown that rising costs, wage pressures and increasing demand for services have led to the gulf in funding, which is projected to rise again to £3.9bn in 2026-27.
Homelessness service costs have rocketed by £604m since 2019-20 – an increase of more than 75% – due to housing shortages and record spend on temporary accommodation, the LGA said in its submission to the Treasury ahead of the Budget in October.
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The LGA also said that the risk of “systemic financial failure” is rising, as 18 councils are now reliant on exceptional financial support from the government to balance their budgets for 2024-25.
Councils are now “increasingly” drawing on their financial reserves, which have fallen by £2.8bn between 2022 and 2024. The LGA found that 42% of councils drew on their reserves in both 2022-23 and 2023-24.
It calculated that councils have made “£24.5bn in service cuts and efficiencies over this period”.
Any further funding cuts will “tip many more councils towards financial ruin and leave them unable to deliver key local services”, the organisation said.
It also highlighted issues with recruitment and retention of staff due to pay gaps between local government and other sectors, with more than nine in 10 councils “struggling to fill essential roles”.
The LGA called on the government to provide local authorities with a “significant and sustained increase in overall funding”, multi-year finance settlements and general rather than ringfenced grant funding.
Louise Gittins, chair of the LGA, said: “Councils are the key to delivering the government’s priorities, but the risk of financial failure across local government is potentially becoming systemic.
“Immediate financial support and long-term funding reform and certainty – alongside a focus on preventative spending – are essential to protect services and enable councils to fully contribute to the government’s agenda, from social care to housing, economic growth and tackling climate change.”
The government has been contacted for a response to the LGA’s concerns.
The London Councils group painted a similarly bleak picture of local authorities’ finances on Thursday, noting that boroughs in the capital would have to make £170m of cuts over the next four years to balance their Housing Revenue Accounts.
Earlier this month, a cross-party group of more than 100 councils set out a roadmap of reforms to local authority financing and the Right to Buy.
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