More local authority financial failure is likely without further funding

20th October 2025

Local authorities will exist in the same perpetual state of financial uncertainty as they did in the 2010s. There are signs that many are still in danger of collapse - without substantial funding increases, warns a new Institute for Government paper.

The first of five reports from the IfG's Public Services Performance Tracker 2025, is an in-depth analysis of the state of local government finances and services - and finds that many are on their knees.

It reveals the impact of more than a decade of severe financial pressure, increasing complexity of demand and onerous statutory duties on local authorities, and sets out how the government can turn around performance.

The report deals with England's local councils but many similar issues exist in Scotland.

Local government is vital to much of what Keir Starmer wants to achieve and Labour has made good progress on reforming local government finance with the Fair Funding Review, the commitment to a multi-year finance settlement, and the reduction of small pots of restrictive grant funding. But the new IfG report shows that funding growth will slow after 2025/26 and may not keep pace with demand.

The new IfG report reveals that:

The government's increases to local government funding will still leave spending power 2.7% lower in 2028/29 than 2010/11 levels in real terms and 15.9% lower when accounting for population growth.
One in six upper-tier local authorities relied on emergency funding to balance their books in 2025/26, selling assets and borrowing to meet in-year pressures.

Between 2009/10 and 2024/25, local authorities increased per-person spending on adult and children's social care by 19.3% in real terms; per-person spending on other services declined by more than a third (-38.1%) in real terms in that time.
The adult social care sector has never been more reliant on international staff, with almost one in four now from outside the UK and EEA compared to one in 12 in 2020.

Access to adult social care increased slightly for adults aged 65+ in 2023/24, but is still more than 60% lower than in 2003/04.

Spending on children's social care has risen twice as fast as the number of children in care since 2012/13.

There are now roughly 15,000 more children in care than there were in 2014, but 2,000 fewer fostering households.

Councils’ net spending on temporary accommodation has grown in real terms by more than a factor of 19 since 2009/10.

One in 200 households in England are living in temporary accommodation.

In London, the average length of stay in temporary accommodation is estimated at three years and 11 months.

Public Services Performance Tracker 2025

Our annual report provides the most comprehensive stocktake to date of the inheritance left by the Conservative government and the decisions made since Labour came to power.

Read the report HERE

The new IfG report’s three recommendations for local and central government are:

Lowering barriers to integration by aligning financial incentives, allowing services more freedom to innovate, and creating more financial and policy stability. Siloed services lead to duplicative, wasteful spending and poor outcomes for residents.
Encouraging spending on preventative services, by placing a broad ringfence around preventative funding, but giving local authorities flexibility over how that is spent. Local authorities have been forced to cut spending on preventative services to fund more acute ones.

Ensuring that reforms are aligned and place as little burden on frontline staff as possible. The government deserves praise for pushing ahead with difficult reforms. But reform programmes are progressing at different speeds and with little coordination. Central government must.

The unwillingness to reform adult social care in this parliament is a failure which lowers the chance of successfully reforming local government and the NHS.

Associate director Stuart Hoddinott: says "The government is making good progress towards rebalancing local government funding. But that can only take them so far. Financial alarm bells are growing louder in many local authorities, and the government is still relying on short term financial fixes to prevent them from toppling over."

On adult social care, Stuart Hoddinott says: "The government’s failure to properly reform the sector in this parliament means that many people will continue to go without the care they need. It will also make it much harder to deliver other local authority services and improve performance in the NHS"

On homelessness, report author Amber Dellar says: "Our homelessness system is costing more but delivering less for households in crisis. The government must stop pouring money into a leaky bucket. It has taken some welcome first steps, but its forthcoming homelessness strategy must shift the system decisively from crisis response to prevention."