Council chiefs warn services face £3bn funding gap as inflation bites

Councils across England are facing a funding shortfall of almost £3bn over the next two years just to keep local services at their current levels, according to a new report.

The Local Government Association (LGA) said the cost of delivering services would exceed core funding by £2bn this year and £900m in 2024/25.

And, if inflation continued to rise, the gap could increase by a further £2.2bn.

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They also warned there would be no financial wiggle room for local authorities to address existing underfunding in areas such as social care or homelessness, nor to improve or expand existing services.

The LGA said councils would have to consider making cuts to services or spending their reserves in order to balance the books this year.

But it warned the latter was not a long-term solution to financial pressures, as reserves “can only be spent once”.

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Chair of the group’s resources board, Councillor Pete Marland, said: “Inflation, the National Living Wage, energy costs and ongoing increasing demand for services are all adding billions of extra costs onto councils just to keep services standing still.

“Councils’ ability to mitigate these stark pressures are being continuously hampered by one-year funding settlements, one-off funding pots and uncertainty due to repeated delays to funding reforms.”

He said the government “needed to come up with a long-term plan to sufficiently fund local services”, including multi-year settlements and more clarity on financial reform.

That way councils could “plan effectively, balance competing pressures across different service areas and maximise the impact of their spending”.

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A government spokesperson said this year’s financial settlement would make almost £60bn available to English councils, which they said was an increase of 9.4% on last year.

And they said the majority of funding was “un-ringfenced in recognition of local authorities being best placed to understand local priorities”.

The spokesperson added: “The government will look in the round at local government spending when finalising budgets at next year’s finance settlement, as we do every year to ensure councils can continue to deliver vital services.

“We have also provided multi-year certainty to local government, outlining spending over the next two years to allow councils to plan ahead with confidence.”

The LGA’s report comes on the first day of its annual conference in Bournemouth, with Levelling Up Secretary Michael Gove and deputy Labour leader Angela Rayner both expected to address delegates – including senior council leaders from across the country.

Ms Rayner will promise to give residents a “bigger stake” in their area, saying: “Decisions that create wealth in our communities – economic wealth and civic wealth – should be taken by local people with skin in the game.”

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