Spending Review – Councils could face £8bn funding black hole by 2028/29
Councils in England should be a major driver to boost local growth over the coming years but could face a funding gap of more than £8 billion by 2028/29 without adequate funding, new analysis by the Local Government Association reveals today.
In its submission to The Treasury ahead of the Spending Review, the LGA demonstrates how councils have a vital role to play in the Government’s reform and growth agenda but will only be able to deliver on this ambition if they are given the necessary financial headroom as Government makes decisions about the nation’s finances.
The LGA’s submission highlights the impact of not investing across the many critical council services that millions of people rely upon everyday such as looking after older and vulnerable adults, ensuring children gain access to vital SEND provision, providing home to school transport and much relied upon temporary accommodation.
Without urgent action in the upcoming Spending Review, not only will many councils be left with having to make impossible choices on what desperately needed services they can provide in the future, but the opportunity that this moment presents on boosting growth and reform may be missed.
This year sees the seventh one-year settlement in a row for councils. Over time this has severely hindered how councils can plan for services and deliver to their local communities. It is, therefore, encouraging that that government has now committed to provide councils with three-year settlements over this coming Spending Review period.
However, that promise still comes at a critical time for the future of local services with councils remaining under severe financial strain due to long-standing funding reductions and cost and demand pressures that will continue to rise at an alarming rate and threaten to push many towards the financial brink.
New costs associated with the employer National Insurance Contribution changes, which have not been fully compensated for by government, alongside demographic change, inflation, and unfunded rises to the National Living Wage, are also exacerbating this challenge.
In its submission the LGA reveals that:
- If current cost and demand trends continue, by the end of 2028/29 cost and demand pressures would add £21.4 billion to the cost of delivering council services since 2024/25. This is 29.8 per cent in additional service costs.
- If these new pressures and funding streams are taken into account, councils would face a £1.9 billion gap in 2025/26 rising to £4.0 billion in 2026/27, £6.0 billion in 2027/28, and £8.4 billion in 2028/29.
- Last year 18 councils required Exceptional Financial Support (EFS) to set their 2024/25 budgets. Of those who responded to the LGA’s survey, 25 per cent of chief financial officers (CFOs) now say that their council had either applied for EFS to support their 2025/26 budget or that they expected to do so in 2025/26 or 2026/27. This is indicative of the growing financial emergency facing councils.
Cllr Louise Gittins, Chair of the Local Government Association, said: “Councils hold the key to public sector reform which is a clear ambition of government. As leaders of their communities and major local employers, they must play a critical role in promoting sustainable and inclusive growth.
“We know that there are huge financial challenges ahead for government. However sufficiently funding councils in the Spending Review would enable them to fully play their part in leading local growth priorities and unlock the full potential of their local people, businesses and places.
“Local government has made huge savings and efficiencies over the past decade and continues to innovate and transform services to get the best for residents and provide greater value for money. However, without adequate investment now we risk not being able to deliver crucial services that so many depend upon and our desire to help government fulfil its ambitions for the future are severely hindered.”
Notes to editors
- The Spending Review will set three-year day-to-day government department budgets between 2026/27 to 2028/29. The final details of the Review will be announced by the Chancellor on June 11.
- Councils which applied for EFS this year will receive decisions by the Government this month.
- The survey mentioned was an online one, sent to all chief finance officers in England between 14 January and 30 January 2025. A total of 105 responses were received, yielding a response rate of 33 per cent. All 105 respondents answered the EFS question. To make the findings more representative of all councils, their responses were weighted by their region and council type.
- LGA Spending Review submission