MPs have raised serious concerns over the precarious financial state of local councils, warning that the Government appears to accept the growing crisis as “normalised background noise.” A cross-party report from the Public Accounts Committee (PAC) highlights deep-rooted and persistent challenges in the local government funding system, with many issues remaining unresolved despite repeated warnings. The report points to councils reaching a financial “cliff edge,” with an audit assurance backlog obscuring clarity on whether nearly £73 billion spent in 2023/24 delivered value for money. It emphasises that deteriorating service quality, delayed support for children with special needs, and prolonged temporary accommodation for many families reflect major systemic failings.

The committee called on the Minister for Housing, Communities and Local Government to collaborate with other departments to simplify the convoluted funding system. Currently, hundreds of unique grants outside the main finance settlement are administered through complex, resource-heavy bidding processes, hindering timely and effective allocation of funds. Councils face acute financial strains, notably marked by underinvestment in preventive services that could mitigate crises in social care and homelessness. Official data reveals a stark imbalance: local authorities spend over £121 billion on late intervention in children’s social care annually, while only £2.8 billion is directed towards early support, coinciding with a rise in children entering care systems.

Despite Government pledges of £270 million for children’s social care prevention and nearly £193 million for homelessness prevention, the report warns these efforts remain insufficient in the face of escalating needs and financing complexities. Treasury officials acknowledge that transitioning to more robust, multi-year funding models will be gradual and require sustained effort. The committee also criticised the Government’s failure to assess the impact of increased national insurance contributions (NICs) on local services, with councils unsure whether additional funding fully offsets these costs. Concerns exist that private adult social care providers may pass on increased expenses to councils or terminate contracts, further straining local budgets.

One of the gravest pressures highlighted is the surge in demand for special educational needs and disabilities (SEND) services, with budget overspends projected to hit up to £3.9 billion annually by 2028. While councils have a temporary ability to exclude these deficits until March 2026, the committee warns of potential widespread council bankruptcies once this measure expires, with no clear Government solution yet proposed. The Local Government Association (LGA) echoed these fears, urging the Government to write off existing deficits and implement comprehensive SEND reforms focusing on inclusion in mainstream education settings. The need for a clear timetable and detailed implementation plans for broader local government reform—including funding allocation, council restructuring, and service delivery innovation—was also underscored.

Voicing frustration, PAC chairman Sir Geoffrey Clifton-Brown described the Government’s approach as dangerously complacent, noting the recurring nature of these financial challenges and urging a “paradigm shift” in local government funding. London Councils chairwoman Claire Holland highlighted how ongoing financial constraints undermine councils’ ability to advance shared priorities such as prevention, housing development, and economic growth, stressing the urgent necessity for bold reform of the outdated finance system.

However, local government minister Jim McMahon dismissed the report’s findings as unsupported by evidence. He claimed that the Government has made significant strides, including restoring audit functionality, introducing new legislation for audits, and injecting over £5 billion in new grant funding this year atop £69 billion already allocated. McMahon pointed to improved submission rates for audited accounts and lower claims on financial support compared to previous years as evidence of progress. He also cited ongoing reforms targeting key services like SEND as proof that the Government is adequately supporting local authorities.

Complementary reports from other parliamentary committees and unions paint a similarly stark picture of local government finances. Unison recently revealed that UK councils face a £4.3 billion deficit in 2024-25, expected to worsen to £8.5 billion in the following year, warning of a potential collapse in local services without urgent Government intervention. The Levelling Up, Housing and Communities Committee called for immediate action to close a £4 billion funding gap, highlighting systemic underfunding and increasing social care demand as critical drivers of fiscal instability. The committee recommended reforms to council tax and the funding system and a comprehensive review of SEND provision to ensure long-term sustainability.

Additional parliamentary scrutiny reports add weight to concerns over financial distress, noting an alarming rise in councils issuing section 114 notices—formal signals of financial crisis in England—over recent years. Labour MP Clive Betts, chairing the Levelling Up, Housing and Communities Committee, described the situation as an “out-of-control financial crisis,” urging the Government to use upcoming funding settlements to bridge the gap and implement long-term reforms, including exploring land value taxes and greater fiscal devolution.

Taken together, these assessments reveal a local government sector grappling with sustained funding shortfalls, escalating service demands, and complex, fragmented financing arrangements. While the Government asserts progress and plans, cross-party consensus among MPs, local authorities, and unions stresses the urgent need for comprehensive reform and adequate multi-year funding to prevent further deterioration of essential local services and avert widespread council insolvencies.

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Source: Noah Wire Services