Councils issue warning over impact of rise in national insurance contributions
Councils face a shortfall of £637m next year in direct costs from the increase in national insurance contributions, and potentially £1.13bn more in indirect costs to suppliers, the Local Government Association has claimed.
In its response to the Government’s consultation on the provisional local government finance settlement for 2025-26, the LGA welcomed increases in core spending power and additional funding such as the extra £1.1bn from the new Extended Producer Responsibility for packaging scheme, and £515m to compensate for increases in employer national insurance contributions.
But it warned: “Councils of all types will continue to struggle to balance the books. Many face having to increase council tax bills to bring in desperately needed funding next year but will still be forced to make further cuts to services.”
The national insurance compensation was adrift of the £637m that the LGA estimated the increase would cost councils.
Indirect employer national insurance cost increases, through commissioned providers, could cost an extra £1.13bn.
There was also particular concern about the impact the national insurance rise would have on social care providers “especially smaller charities and providers [which would] exacerbate the already unsustainable pressures facing vital local services”.
While some councils had received a good settlement and would welcome the Recovery Grant, others would be “concerned about the repurposing of grants such as the Rural Services Delivery Grant and the Services Grant and the Government’s use of a different method to allocate some additional funding next year.”
It said council tax could not be the solution “for meeting long-term pressures facing high-demand national services such as adult social care”.
The LGA wanted the abolition of council tax referendum limits and said: ”The assumption that not only the adult social care precept but also a substantial part of any council tax uplift should fund adult social care leaves little for other council services on which all residents depend.”
LGA analysis showed that prior to the Autumn Budget children’s and adult social care faced additional cost pressures of £3.4bn in 2025-26 compared to 2024-25.
“This ongoing shortfall puts services for children and adults at risk, and severely limits councils’ ability to support the Government mission to break down barriers to opportunity,” the LGA said.
Mark Smulian
