Growing cost and demand pressures continue to push councils to “financial brink”, LGA warns

In a submission to Chancellor Rachel Reeves ahead of the Spring Statement, the LGA has expressed concern over the sector’s capacity to cope over the coming years.

The Association noted: “Despite a strong track record of innovation and efforts to drive efficiency, such as through shared service provision and digital transformation programmes, the sector is perhaps now at its financially weakest.

“The consequences of under-funded local government are fewer neighbourhood services, reduced investment in prevention, growing pressure on those who rely most on local support and more communities feeling like they are not seeing an improvement in their local services.”

The Government recently announced that 35 councils have been granted exceptional financial support (EFS) to set balanced general fund budgets for 2026/27.

The majority of these councils have social care responsibilities, meaning the sector will enter 2026/27 with 1 in 5 social care councils reliant on one-off flexibilities such as capitalising day-to-day spending and, in some cases, setting council tax above the referendum threshold, the LGA noted.

The Government’s recent EFS announcements for 2026/27 bring the total value of capitalisation directions provided to the sector to £6.9 billion since 2020/21.

New analysis from the LGA estimates that £1.6 billion of this has been, or will be, resourced through the application of capital receipts, and £5.3 billion through additional council borrowing.

The Association warned: “These pressures are present despite the extraordinary creativity and innovation councils have shown in delivering services as effectively and efficiently as possible. New LGA analysis shows that councils made £27.9 billion worth of savings and efficiencies to their net service spending from 2010/11 to 2024/25.”

In light of this, the LGA has urged the Chancellor to use the Spring Statement to “stabilise council finances”.

Cllr Louise Gittins, Chair of the LGA, said: “Councils have delivered billions of savings, while still delivering vital statutory services upon which residents rely and working hard to provide the place-making services which make communities. But councils cannot keep absorbing rising costs and demand without real consequences.

“The current situation in which an ever-growing number of councils are reliant on selling local assets or by building up debt from borrowing in order to fund vital local services, often for the most vulnerable in society, is not sustainable.

“The Spring Statement is an opportunity for the Chancellor to further provide extra resources and long-term reform councils need so we can protect vital services, plan ahead, and keep delivering services in every community.”

The Treasury has been approached for comment.

Lottie Winson