Sixty per cent of county and unitary councils “not confident” about balancing budget by 2025, research says

Councils have warned they are "running out of road" to prevent financial insolvency as they face a £600m budget overspend this year.

According to analysis from the County Councils Network, the financial pressures are such that one in 10 county and unitary authorities are unsure or not confident they can balance their budget this year, increasing to four in 10 next year and more than half (six in 10) by 2025.

The CCN's Vice Chair and Finance Spokesperson, Cllr Barry Lewis, said the pressures now mean that "well run" councils are at risk of financial failure, not just those suffering from poor governance.

The analysis shows that cost pressures this year top £3.8 billion from a combination of higher than expected inflation and demand, with local authorities now forecasting that they will overspend their budgets this year by £639m - an average of £16m per council.

Rising costs and demand totalling £319m in children’s services account for almost half (45%) of the projected overspend, the research said.

Adult social care (25% – £179m), education, transport – including home to school transport – and highways (22% – £154m), alongside housing (£24m – 3%), make up the bulk of the remaining additional in-year pressure, it added.

The analysis also noted that the funding gap for the county and unitary authorities the CCN surveyed, has grown to £1.6 billion,  with a further shortfall of £1.1bn in 2024/25 and £1.3bn in 2025/26, meaning a total funding shortfall of £4bn between 2023-2026.

Over the course of this three-year period councils have pencilled in £2 billion in savings, according to the CCN, but this would only reduce the deficit by half.

The report noted that unless the government provides emergency funding, "councils will need to make dramatic cuts to services both this year and next to balance the books to prevent their authorities running out of reserves and becoming insolvent."

It added that councils need the government to provide emergency funding for vulnerable children this year and next, similar to the Chancellor's decision to provide extra funding for adult services in last year's autumn budget.

Cllr Lewis, said: “The majority of the £639m of additional and unexpected spending this year is simply outside of councils’ control. The number of vulnerable children requiring care has risen dramatically post-pandemic, while inflation and a broken provider market in statutory care placements mean councils face no choice but to pay spiralling fees.

“County authorities will do all they can to bring down costs over the coming period and have pencilled in £2bn of unprecedented further savings to help balance the books. But after a decade of continuous cutbacks, the scale of reductions and use of reserves needed to fill the funding shortfall is simply unsustainable."

He added: “Birmingham’s recent financial difficulties and issuing of a Section 114 were undoubted made worse by the council’s performance and governance. But, unless we act now, this analysis shows that other well managed councils are running out of road to prevent insolvency.”

The research was based off a survey of 41 of county and unitary authorities conducted by the CCN and the Society of County Treasurers (SCT).

Adam Carey