Local councils spend 70% of cash on services 'used by very few people'

A council boss has said more than 70% of budgets are being used up by “very few people” as it emerged a number of authorities could become effectively bankrupt in the next five years.

The warning comes after some 51% of senior officials who responded to a survey from the Local Government Information Unit (LGIU) said they believe their councils are at risk of running out of money unless significant reform is brought in.

The report, which received 160 responses from across 128 English councils, said that while concerns of funding were not uncommon recently, this year the "balance has tipped" and it has become clear how "widespread councils’ desperate funding situation is".

Martin Tett, chair of the Local Government Association (LGA) People and Places Board, warned the current climate for councils was “really tough” and they were seeing “ immense pressures on services”. The Buckinghamshire Council leader said the four areas that used up most money (more than 70%) were children safeguarding, adult social care, transport for children with special needs and temporary accommodation for people experiencing homelessness.

Tett told BBC Radio 4’s Today programme: “So when I knock on doors, people think it’s about potholes, bins and things like that. But actually the vast majority of the money we get from them goes on those four services which, quite frankly, very few people use.”

He called for financial settlements that span over multiple years to allow for a more strategic approach towards reshaping services, instead of relying on insufficient one-year budgets. He further criticised the 70-90% of funds that are ring-fenced by the government and suggested that, with greater flexibility, they could be put to better use. He also urged the end of competitive bids for funding which he called a "waste of time".

Ahead of the spring budget, the LGA has urged the government to provide further funding to address the growing financial crisis facing councils and local services. It added all political parties would also need to provide manifesto commitments to reform the entire system of funding local government ahead of the general election.

The government provided £600m extra funding in 2024/25 to help protect services from some cuts and support councils to try and set balanced budgets this year, it said. However, the LGA has assessed there would be a £4bn funding gap across 2023/24 and 2024/25.

Bankrupt councils

Some 160 senior council officials at 128 councils responded anonymously to the LGIU survey. In total, 9% said they were in danger of effective bankruptcy in the next financial year. The trust in the sustainability of council finances also hit an all-time low, with only 4% of respondents feeling confident about it in 2024, dropping from 14% in 2023.

More than 90% of respondents said the two biggest causes of financial pressures on councils were inflation and the cost of living crisis, with the report describing the situation as “catastrophic" and "posing an existential threat to local government.” The survey also revealed that only 4% of councils nationwide felt confident in the finance system for local government, and just 6% were satisfied with how the government was handling the situation.

To cope with the financial struggles, nine in every 10 councils are considering raising council tax or increasing parking and environmental waste fees. Meanwhile, one in 10 councils will cut services related to special educational needs and disability (SEND) and children's care services.

But the services in the most danger, according to the survey, were parks and leisure (31.9%), arts and culture (30.6%) and business support (30%). Around two-thirds of councils are cutting spending on services, which means they are becoming more expensive for most residents, while also being reduced.

The study revealed more than half of the councils rely on their financial reserves to stay afloat, while a fifth plans to sell their publicly-owned assets. The situation is concerning as more than half of the respondents reported drawing on their reserves this financial year, and plan to do the same in the upcoming year. This is a serious warning sign of problems to come if councils spend all their reserves.

Read more

• Councils Issue bleak bankruptcy warning for next government (Huffpost)

• Councils warn of drastic cuts amid fears over authorities going bust (PA)

• How to save money on your council tax as bills set to rise by at least 5% (Yahoo Finance)