8 percent of councils say financial constraints could leave them bankrupt

New research out today from the Local Government Information Unit (LGIU) reveals more than half of councils will be cutting spending on services, increasing commercial investments, or spending reserves to make ends meet in the year ahead. The 2023 State of Local Government Finance report found that these desperate measures are being taken on top of the more than 90% of councils that would also be increasing council tax or increasing fees or charges.

This survey (last conducted in 2020) found that 91 percent of councils would be increasing council tax this year with most respondents saying they would need to increase council tax by the largest permissible amount without a referendum (2.5-2.99%).

A quarter of councils believe residents can no longer access the same level of frontline services as last year. And, nearly 20% think their 2023-2024 budgets will lead to cuts that will be visible to the public. Most worryingly, just under 1 in 10 believe that financial constraints represent a threat to their capacity to fulfil their statutory duties with over 50 percent of councils saying they would be cutting spending on services.

Thirty years on from the introduction of council tax in the UK, just 14 percent of councils across England said they were confident in the sustainability of local government finance and only 8% felt confident that the government would prioritise local government in wider policy decisions.

For 2023/24, housing and homelessness was named as the top immediate pressure for council finances (25%), followed by children’s services and education (17%) and adult social care (15%). Adult social care was identified as the top long-term pressure for council finances (40%), followed by environment and waste (16%) and children’s services (12.5%).

To cope with these immediate and long-term pressures, 24% of councils plan to increase their level of borrowing. Over 67% of councils plan to use their reserves with most of these councils (80%) also having used their reserves last year. Additionally, 97% of councils with social care responsibilities intend to make use of the social care precept in 2023/24.

Looking to alternative models of local government funding, nearly three quarters (73%) of councils felt 100% Business Rate Retention was their preferred mechanism. Other alternative funding models that councils preferred included scrapping the council tax referendum requirement (28%), a local share of income tax (26%) and devolving funding for other public services (21%).

Over half of all respondents said they would be increasing their commercial activity this year. The most popular options were local housing and commercial developments, and asset sales, each of which over a quarter of all councils will be doing.

The 2023 State of Local Government Finance report is part of the wider work of the LGIU’s Local Democracy Research Centre which was set up by the LGIU to investigate the things that matter to our members and to local government around the world. Further analysis on how other parts of the UK and councils around the world are managing their finances will be conducted in the coming months. To get involved in this ongoing research contact [email protected].

An embargoed copy of the report is available upon request along with a breakdown of this data by region.

Jonathan Carr-West, Chief Executive of LGIU, said: “In the 10 years since we started this survey, we have seen consistently low confidence in the sustainability of the local government funding system but this year’s results – at just 14 percent of councils across England – are at an all-time low.

Day in and day out, councils continue to display extraordinary dedication, innovation and resilience in serving their communities but they are let down by a funding system that is not fit for purpose. This year’s State of Local Government Finance report lays bare the depths of this failure.

Despite repeated promises from central government, we have seen no reform of local government finance and no return to multi-year funding. Instead, there has been a disjointed series of one-year settlements predicated on local authorities raising council tax by the highest amount permitted.

And, even with these tax rises, councils are having to cut services, borrow more money and dip into their reserves year after year. Citizens across the country are failed in three ways: their bills rise, their services are cut and the councils they rely on edge ever closer to financial ruin.

There’s no single solution to this problem. Instead, local government is crying out for a toolbox of fiscal devolution measures. It’s time to give power to councils and let them succeed where central government has comprehensively failed.”