Failure To Address £54bn Funding Black-hole Could Leave Councils In England As Little More Than Care Authorities By The End Of Decade

3rd October 2024

Councils today warn that unless the government acts in the Budget and Spending Review, local authorities in England face a funding shortfall of £54bn over the next five years - leaving the prospect of them providing ‘little more' than care services by the end of the decade in order to avert financial insolvency.

New analysis from the County Councils Network (CCN) reveals this funding black hole is fuelled by rising demand and costs in just three service areas: adult social care, children's services, and home to school transport. Together, they account for 83% of the total increase in costs councils are projected to be spending on services by 2030.

The warning comes in the CCN's Budget and Spending Review submission to the government, published today alongside a major new report The Financial Outlook for Councils this Parliament. This report features new spending need analysis by PwC and funding projections from Pixel Financial Management, both commissioned by the CCN.

While the analysis shows that yearly rises in council tax of 3% could reduce this cumulative deficit to £38bn over the next five years, the CCN argues that the government ‘cannot rely' on rises higher than 3% to help plug the gap and local authorities would still be left to find billions each year in ‘undeliverable' service reductions.

Despite yearly council tax rises over the past decade, local authorities have had to prioritise funding to high demand services where they have a legal responsibility, such as special educational needs, children's services and adult social care. This has meant they have had to reduce their spend on other vital every day services such as libraries, buses, road maintenance, children's centres and youth services.

These important functions are some of the 800 different local services provided to local residents and businesses by councils. Many of these are also statutory services which councils are legally obliged to deliver, while others are discretionary.

But under current projections, even with yearly council tax increases, councils warn they will have ‘no choice’ but to continue to divert even more funding to care services. This will leave them providing ‘little more’ than care services in just a matter of years. However, with many councils already providing close to statutory minimum levels in services this will still not be enough - threatening their ability to remain solvent unless their statutory obligations change.

With county and rural unitary authorities facing the largest deficits in local government over the next five years, a new survey of chief executives of these authorities reveals that 16 could be at risk of declaring bankruptcy by 2026/27, with a further six the year after, if government does not provide extra funding and councils statutory responsibilities remain the same. This could impact services delivered to over 16 million residents in England.

CCN says that an ‘unpalatable’ trade-off between reducing statutory duties or insolvency must be avoided through the government providing a substantive injection of new resources and ‘deep and fundamental reform’ to services such as children’s social care, adult care services and SEND home to school transport. Failure to do so would undermine the wide-ranging purpose of local government and derail the government’s ‘mission-led’ approach to public-service reform and greater devolution to councils.

The CCN’s analysis reveals:

As a result of rising demand, inflation and continuing market failure, councils are forecast to see a rise of £26bn between 2022 and 2030 in additional costs, which are primarily driven in the three key service areas: adult social care, children’s social care, and home to school transport. Adult social care spending in England is predicted to increase by £11.8bn, children’s services by £8.4bn and home to school transport by £1.7bn.
Due to these additional costs, and if there is no extra funding for councils from the government, then councils face a cumulative funding gap of £54bn over the next five years. County and rural unitary authorities in England represent 36%, £20.3bn, of this cumulative total.
Raising council tax annually by 3% would reduce the shortfall by a third to £37.6bn, but the CCN says that government should not rely on rises above 3% to close the remaining shortfall.
Councils say ‘deep and fundamental’ reform to services this parliament could help reduce the funding shortfall further. Analysis contained in the report shows that if reforms are implemented and they help contain demand and costs, spending could be curtailed over time. This could limit the forecast growth in children’s services, adult social care and home to school transport expenditure from 2027, reducing the cumulative deficit further to £24.2bn over the five-year forecast, including council tax rises each year.
However, the CCN warns that this reduction won’t occur unless the government introduce and drive through reforms to address spiralling costs in children’s services, adult social care, and in special educational needs.

And councils say that reform is urgent - and be outlined and delivered in the next 18 months - to have an impact on councils’ spending. Reforms should include incentivising mainstream schools to become more inclusive for SEND pupils to reduce spend on school transport and means-testing provision, intervening in the market to cap provider fees for residential placements for children, and addressing the spike in costs for adult social care services for those of working age.

Cllr Barry Lewis, Finance Spokesperson and Vice-Chair of the County Councils Network, said:

"Councils pride themselves on the quality and breadth of the care services that they provide to vulnerable people. However, councils do much more than this: delivering over 800 different services to local residents and businesses, many of which are essential to people’s everyday lives.

"But today’s new analysis shows the bleak financial outlook facing local authorities of all shapes and sizes. To meet all their projected service pressures, councils are starring down the barrel of a £54bn funding black hole. While council tax rises can reduce this deficit, government cannot rely on this alone and local authorities would still be left to find billions each year.

"With the funding gap fuelled by rising costs in adult social care, children’s services and SEND transport, councils will have to divert even more funding to prop up these services, leaving councils providing little more than care services by the end of this Parliament. But with many local authorities already close to the legal minimum on the services they deliver, our survey shows still won’t be enough for some. Ministers would therefore have no choice but to radically rethink the statutory responsibilities placed upon councils to prevent six in ten declaring bankruptcy by 2028.

"However, this unpalatable trade-off can be avoided by providing a substantive injection of resources to help shore up services this parliament, then embarking on deep and fundamental reform to address demand and market failures driving costs in children’s services, special educational needs, and adult social care. This needs to happen urgently with a plan to be actioned within the next 18 months, otherwise we risk undermining the wide-ranging purpose of local government and derailing the government’s mission-led approach to public-service reform and greater devolution to councils."

Download CCN’s submission and The Outlook For Council Finances at https://www.countycouncilsnetwork.org.uk/failure-to-address-54bn-funding-black-hole-could-leave-councils-as-little-more-than-care-authorities-by-the-end-of-decade/