Inquiry looks at local authority finances

The Levelling Up, Housing and Communities Committee has published a report looking at the finance of local authorities.

The report warned that the financial crisis is out of control, with even well-run councils at risk of going bust.

The committee has highlighted a £4 billion funding gap, which must be filled to avoid a severe impact on services.

The report claimed that English councils were suffering from systemic underfunding, at the same time as increased costs and demands for services.

Nottingham is the latest council to issue a Section 114 notice, becoming the eighth to do so in the last six years. In the previous 18 years, there were none.

Cllr Claire Holland, Deputy Chair of London Councils, said: “The LUHC Committee’s report provides a thorough assessment of why local authorities are facing financial distress, and what must be done to prevent more councils falling over and protect vital local services.

“London boroughs have had to deal with over a decade of funding cuts, rising need and complexity of need of residents and new duties and expectations from central government. Yet despite the latest funding settlement, and some additional funding announced last week, we still collectively face a £400 million funding gap in 2024/25. This is roughly what boroughs spend on homelessness in a single year.

"The government must take the committee’s recommendations seriously. Now is the time to urgently work with councils to reform local government funding to ensure it is sufficient to meet the growing scale of demand, is more fairly distributed, more certain and less centrally controlled."

Cllr Pete Marland, Chair of the Local Government Association’s Resources Board, said: “The extra government funding recently announced is positive will help councils meet some of the pressures they face this year, particularly in adult and children’s social care. However, as this report sets out, significant challenges remain going into 2024/25 and beyond.

“Councils have led the way at finding ways to save money and reduce costs and this work will continue, but they will still need to raise council tax this year and many will need to make further savings to local services in order to plug remaining funding gaps. As the Committee rightly highlights, cost and demand pressures will continue to stretch council budgets to the limit. Without further funding, some councils will find themselves struggling to set balanced budgets in 2024/25 and potentially unable to do so as they look forward to 2025/26.

“The amount of funding available to councils is out of line with the requirements placed upon them. As well as needing to address this, any incoming Government needs to give urgent attention to the entire system of funding local government to deliver vital local services, including reform and legislative change. With fair, sustainable funding and multi-year settlements councils can plan ahead and help to deliver against national priorities such as economic growth, housing, net zero  support for families and children and improved health.”

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