Five challenges facing local government in 2025
Local government is facing a complex and shifting operational landscape, shaped by ongoing budgetary pressures, ambitious policy objectives, and new legislative frameworks. Lawyers from the Government & Public Services team at TLT identify their top five challenges for 2025 and offer some thoughts on the best approach to tackling them.
Social housing, planning and devolution (David Meecham, partner and head of housing & regeneration)
Following the Labour Government’s 2024 election and the October Budget, local authorities in the UK are grappling with significant challenges in social housing, planning, and devolution, all underpinned by precarious financial standings. The looming threat of Section 114 notices, effectively declarations of bankruptcy, adds further strain.
Labour's ambitious target to build 1.5 million homes in five years requires local authorities to deliver social housing, but there are barriers that will impact on their ability to do so. Financial strains from rising social care costs, historical debts under the Housing Revenue Account (HRA), and Private Finance Initiative (PFI) obligations restrict further borrowing for new developments. Uncertainty around central government funding and competitive bidding processes further complicates efforts, disadvantaging financially distressed councils. High land acquisition costs, particularly in urban areas, and environmental regulations imposing nutrient neutrality requirements have stalled housing projects. Councils like Birmingham and Croydon, which have issued Section 114 notices, face severe limitations in progressing housing initiatives.
The push for economic growth has led to major infrastructure proposals and relaxed planning regulations, creating tensions for local authorities. Many councils struggle with funding necessary infrastructure like roads, schools, and healthcare facilities, leading to developments that proceed without adequate support, overstretching public services and lowering quality of life. Environmental concerns and commitments to net-zero policies clash with relaxed planning rules, leading to potential legal challenges from environmental groups. Permitted development rights (PDR), aimed at boosting housing supply, have led to concerns about housing quality and local oversight, increasing legal disputes for councils. The ever-present criticism of lack of resource within planning authorities and the need for the planning system to be overhauled add to the problem.
Labour's English Devolution White Paper aims to expand local government powers and reduce regional inequalities, but financial fragility and governance challenges pose significant obstacles. Newly devolved authorities may inherit unsustainable budgets, and resistance from existing authorities complicates governance structures. Directly elected mayors and government commissioners further complicate funding and policy direction. Regional economic inequalities persist, with many northern councils arguing that devolution shifts the financial burden without addressing underfunding.
Local authorities must navigate a high-risk environment, balancing growth and development with financial sustainability, legal scrutiny, and public accountability.
AI and technology (Oluwagbemiga Ogunleye, trainee solicitor)
Artificial Intelligence (AI), as a tool used to improve productivity, services and manage costs, offers opportunities for local government.
The Labour Government is taking a supportive approach to AI adoption, recently publishing its roadmap to capturing opportunities in its ‘AI Opportunities Action Plan’.
AI can be costly to develop and implement though. But for local government looking for technology to help staff to deliver services under yet more budget constraint, careful investment in AI technologies could provide just what some councils are looking for. Those authorities will surely look to incumbent and future tech suppliers to provide AI or AI embedded solutions, to play a vital role in managing costs and improve service delivery to residents through best use of staff time.
Some key issues LA’s will need to consider are (i) the accuracy of the AI’s output; (ii) how the suppliers mitigate data protection risks, particularly clear restrictions on inappropriate use of person data to train the AI model; and (iii) the intellectual property rights protections of the AI outputs from LA’s data. This is ideal given the dynamic nature of the market.
A few local councils have already procured AI, with notable success. For example Salford Council’s integration of an Agile AI Validator into other software is said to have helped the council to achieve 60% reduction in validation and registration time for planning applications; and Hull City Council is trialling AI to improve traffic management.
Another key aspect is the extent to which all council stakeholders and in particular local residents will benefit from investment in AI. Not everyone is tech savvy. While AI useability is considered, suppliers offering AI or embedded AI in their services, should clearly demonstrate compliance with relevant and emerging AI regulation and still offer good value.
Local Inquiries (Sabrina Kapur, senior associate, Josh Town, managing associate, and Andrew King, legal director)
On 16 January 2025, the Home Secretary announced up to five new locally-led inquiries into child exploitation and abuse, emphasising the benefits that local inquiries can yield, including more detailed and locally-relevant results. As part of the announcement, the Home Secretary confirmed that central government support for these local inquiries will include an initial commitment of £5 million in funding.
The government is currently collaborating with leading counsel to develop a new framework for victim-centred, locally-led inquiries, starting with Oldham Council and up to four other pilot areas. This initiative will also include support for local authorities interested in exploring alternative ways to support victims, such as establishing local panels or utilising the experience of the IICSA Truth Project.
Seasoned inquiry lawyers will recognise the significant benefits and solutions that an effective and efficiently conducted inquiry can offer when dealing with matters of public concern. However, those familiar with the process of setting up, facilitating, and concluding an inquiry will also appreciate that it can be a daunting and resource intense challenge for sponsoring bodies, particularly if that body is unfamiliar with inquiry procedure.
Given the government's support for local inquiries, these may become an increasingly common feature of local government operations throughout 2025. Therefore it may be advisable for local authority legal teams to enhance and consolidate their knowledge of Inquiry procedures preemptively - just in case they too face calls for an inquiry in the near future.
Subsidy and public law (Sabrina Kapur, senior associate, Josh Town, managing associate, and Andrew King, legal director)
Government initiatives are increasing pressure on local authorities to deliver new housing in expedited time frames. These initiatives and time frames will need to factor in the statutory burdens placed on local authorities as a result of the “new-ish” domestic subsidy control regime. These obligations are in addition to the Managing Public Money and Value for Money policies that local authorities must already comply with.
The Subsidy Control Act 2022 introduced a new set of obligations for public authorities to comply with when utilising public money. For instance, where a site has been identified for a new housing development the local authority will be responsible for distributing funds to various stakeholders through the project life cycle. The distribution of these funds could be caught by the Subsidy Control Act 2022.
If caught, ensuring compliance with the Subsidy Control Act 2022 can be a burdensome task for local authorities, resulting in delays to timelines if processes are not factored in. For example, if funding does amount to a subsidy and is subject to the mandatory referral process at the Subsidy Advice Unit, who sit within the CMA, project timelines will need to factor in the 35 working day process.
Local authorities are likely to require legal risk advice ahead of making decisions on granting large amounts of funding as there are two routes by which an interested party can challenge a subsidy. The first is by issuing a claim at the Competition and Appeals Tribunal and the second is by way of judicial review at the High Court. Local suthorities will need to ensure their decision-making process is transparent, complies with relevant policies and well documented to prevent the risks of a successful claim. This will further increase the cost, time and resource burdens already faced by local suthorities.
Public procurement (Kuldip Dhanoya, partner and head of public procurement)
The Procurement Act 2023 (Act) will take effect on 24 February 2025, after a significant period of consultation initiated as far back as December 2020. The Act will see a shift in landscape with a focus on transparency, accountability, flexibility and greater access to opportunities for both SME’s and voluntary sectors. For the public sector this has involved considerable preparatory work including early procurement planning, refreshing internal procurement guidance and policies, people training and securing compatibility with the new Central Digital Platform. This is all at a time when local authorities have been adjusting to the introduction of the Provider Selection Regime (PSR) which applies to the procurement of health care services and came into force on 1 January 2024.
Notably both regimes are driven by greater flexibility, the PSR in terms of prioritising of user choice and easier routes to securing the most suitable provider, the Procurement Act in terms of designing bespoke procurement processes which reflect the complexity of buyer requirements.
Clearly there will challenges in applying two new regimes in the space of 14 months, whilst facing the on-going budgetary and staffing challenges, particularly given the application of the Procurement Act to the whole lifecycle of a procurement up to contract termination. The objectives of the Procurement Act are commendable: greater public sector innovation, flexible procuring and greater supplier transparency and accountability. However, these benefits will only be realised if local authorities are able to focus more of their investment in commercial and contract management skills and securing the data necessary to hold suppliers to meet the Act’s transparency requirements.
