Half of councils could issue section 114 notice in next five years, amid surge in councils dipping into reserves, survey shows

Half of councils (51%) have warned they are likely to issue a section 114 notice in the next five years, and 14 local authorities (9%) said they are likely to issue such a notice within the next financial year, a survey from the Local Government Information Unit (LGiU) has revealed.

The survey, which informed the LGiU's State of Local Government Finance in England 2024 report, found just 4% of councils are confident in the sustainability of local government finance, and more than half drew on their reserves this financial year, with half of respondents reporting their councils planned to draw on reserves again in the next financial year.

The study, which anonymously surveyed council leaders, chief executives, chief finance officers and cabinet members for finance, found nine in ten plan to increase fees on parking and environmental waste, and the same proportion plan to raise council tax, with one-fifth (21%) continuing to sell publicly-owned assets.

One in ten councils are planning to cut SEND services, 11.9% will cut children's care services, and 16% will cut adult social care, the report said.

In addition, almost a third of councils (31%) plan on cutting parks and leisure, with another third (30%) looking to cut arts and culture and a similar proportion slashing business support (30%).

The report said that the number of councils drawing on reserves is a "serious warning sign of problems to come if councils use up all their reserves".

It also noted that for councils with responsibility for social care, children's social care "is by far the most urgent short-term pressure, and adults and children's social care together make up the most serious long-term pressure".

Among councils without social care responsibilities, housing and homelessness are the most serious short-term and long-term pressure, with environment and waste a close second place for long-term pressure, the report said.

The vast majority (97%) of respondents said multi-year financial settlements would help, while 74% supported ending competitive bids for funding and 74% supported full business rates retention.

Jonathan Carr-West, Chief Executive of the LGIU, said: "Cutting services, borrowing more money and spending reserves year after year is completely unsustainable.

"With over half of councils warning us they are at risk of bankruptcy within the next parliament, it is no longer possible to blame individual governance issues.

"There clearly is a systemic issue and rather than bunging local government panicked injections of cash, whoever wins the next election will need to reform the entire system, bringing back multi-year settlements based on an area's need and developing new ways of revenue raising."

John Pearce, President of the Association of Directors of Children's Services (ADCS), said: "Emergency one-off uplifts to council funding and the trend of distributing funding via competitions are no substitute for sustainable long-term funding for all.

"Since 2010, funding for local government has fallen by almost half yet more children and families need our help and support with increasingly complex needs. An estimated £4 billion blackhole will emerge in council finances over the next two years."

He added: "Councils have worked hard to manage demand and protect the most vulnerable, but they have been left with no other option but to counterintuitively cut the very services that enable us to intervene early before crisis hits and reduce future need and harm. This is not in children's best interests and is storing up huge financial and human costs for the long run."

Pearce said ADCS supports multi-year funding settlements and ending competitive bids for funding.

Claire Ward, partner and local government sector specialist at Anthony Collins, said: "In the Spring Statement, there is an opportunity for Government to intervene to break the cycle of decline. It could do this by immediately putting in place a root and branch review to understand the demand pressures that councils are facing and the service levels needed to meet them.

"The Government also needs to re-introduce multi-year settlements with immediate effect. One-off funding announcements are a sticking plaster solution – they fuel a culture of short-term measures and force councils to consider cutting discretionary preventative services, even though they know that this is likely to increase demand pressures over time."

The LGiU report comes a month after the Secretary of State for Levelling Up, Housing and Communities, Michael Gove, announced an extra £600m in local government funding, principally for councils responsible for social care costs.

The funding boost came after 44 Conservative MPs signed a letter asking for more money to be provided to councils and warnings from the Local Government Association (LGA) and the County Councils Network that more councils were in the region of issuing a section 114 notice.

Adam Carey