Local government finances are becoming increasingly unsustainable due to rising demand for essential frontline services, delayed finance reform, and reduced investment in preventative programmes, according to a new report from the National Audit Office.
Despite a 4% increase in funding through the Local Government Finance Settlement from 2015-16 to 2023-24, funding per person fell by 1%. This has not kept pace with the growing demand for services, particularly in adult and children’s social care, temporary accommodation, and the special educational needs and disabilities (SEND) system. Over half of the £72.8 billion spent by local government in 2023-24 was allocated to social care.
Key findings of the report include:
- Funding Increase: 4% rise in funding from 2015-16 to 2023-24
- Funding Per Person: 1% decrease over the same period
- Service Demand: Significant increases in demand for social care and SEND services
- Financial Support: 42 councils received exceptional financial support
National Audit Office Head Gareth Davies commented:
“There have been repeated delays to local government finance reform and government can no longer resort to short-term solutions to support local authorities. Action to address this must resolve the systemic weaknesses in local government financial sustainability through a comprehensive, cross-government approach.”
The NAO report, ‘Local Government Financial Sustainability,’ examines the current finance system and provides recommendations to inform the Ministry of Housing, Communities & Local Government’s (MHCLG) planned reforms. The report highlights the urgent need for a whole-system, cross-government approach to ensure financial sustainability.
The report also reveals that access to public services is becoming increasingly difficult as demand outstrips resources. For example, only half of Education, Health and Care (EHC) plans for special educational needs were issued within the 20-week deadline in 2023, and nearly 3,800 families were housed in Bed & Breakfast accommodation for longer than the six-week legal limit.
The NAO recommends a comprehensive funding and service reform plan, focusing on long-term value for money and clear cross-departmental priorities. The government has committed to multi-year finance settlements starting in 2026-27 and has launched consultations to help stabilise and rebuild local government financial sustainability.
The Local Government Association has also responded to the report, with Chair of the Economy and Resources Board Cllr Pete Marland saying:
“Councils in England face a funding gap of up to £8 billion by 2028/29. While they continue to innovate and transform services to deliver for communities and provide greater value for money, they desperately-need a significant and sustained increase in overall funding in the Spending Review to meet the requirements being placed on them.
“Without adequate funding, councils will continue to struggle to provide crucial services – with devastating consequences for those who rely on them - and it will be impossible for them to help the Government achieve its reform and growth agenda.
“The NAO rightly highlights that funding pressures are being exacerbated by a lack of reform which has weakened the financial sustainability of councils and left them with a complex, outdated funding system. Creating an improved and a more sustainable funding system for local government is also critical to strengthen the value for money of local spending and, most importantly, improve services for communities.”
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