The Funding Crisis in Local Councils in the UK: Causes & Consequences

It is no secret that Local Authorities throughout the UK have found themselves in a period of economic turmoil; struggling with a lack of funding and how to distribute it - or, often, deciding to withhold it.

Since Northamptonshire County Council issued section 114 (the local council equivalent to declaring bankruptcy) in 2018 – the first to be issued in nearly two decades – an average of two regional authorities have issued their own section 114 notice each year since. Three local authorities issued section 114 notices last year alone, including the largest in Europe, Birmingham City Council.

Referring to this escalation, Jonathon Carr-West, Chief Executive of the Local Government Information Unit (LGIU), said: “This year’s State of Local Government Finance report reveals the desperate, ruinous financial situation councils find themselves in.

“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.”

What are the Causes?

Funding

The key driver is lack of central government funding. Council’s cannot borrow to run services and so rely on income and reserves in order to pay for day-to-day services. Central government funding cuts have seen councils lose nearly 50% of their government funding since 2010. This has been partially offset by council tax rises, but still means local authorities have lost nearly 20% of their funding in real terms since 2010, with those representing the most deprived areas reaching nearly 30%.

Adult Social Care

During this time spending on Adult Social Care (support provided to adults, including both older people and people of working age, with physical disabilities, learning disabilities, or physical or mental illnesses) has increased dramatically. An ageing population is driving increased demand while the cost of care home placements has increased by 35%. 

Child Social Care

Spending on Children’s Social Care has increased significantly, particularly since COVID-19 with the number of children in secure units and children’s homes and the number with Education, Health and Care plans both increasing by over 30% between early 2020 and early 2023.

The cost per placement has increased by almost 20% over that time period. Both Adult and Children Social Care costs have increased far above inflation over this time, coming on the back of a huge reduction in core spending power.

Temporary Accommodation

Finally, the cost of providing Temporary Accommodation has risen sharply over the past few years. An LGA report revealed that local councils were spending at least £1.74bn to provide temporary accommodation, with a severe shortage in social housing resulting in a portion of this going to private alternatives including hotels and B&Bs.

These figures represented the current situation as of March 2023, when 104,000 households were living in temporary accommodation, an 89% increase over the past decade. Only 8 months later at the close of 2023, this had risen to 112,660 households in temporary accommodation—with the funding required to balance this increasing exponentially, pushed higher by a cost of living crisis and inflation.

What are the Consequences?

The most immediate and simple way look at this is that while bills have increased significantly for the average council tax-payer, services have been significantly scaled back.

Cuts to park budgets, economic development, culture services, and the reduction in spending on Public Health, education, housing services, children's centres and everything else that local government is responsible for have left many cities, towns and villages looking neglected and often struggling with anti-social behaviour and boarded-up high streets.

Behind the scenes, many of the essential back office functions have been stripped to the bone in order to protect frontline services: call centres are understaffed; planning services unable to cope with demand; not enough project managers, accountants or procurement staff to deliver on council ambitions or the transformation projects to reduce costs on essential services; not enough HR staff to support those on the frontline and not enough administrative staff to support the social workers, education & skills teams, the transport teams and the rest of local government trying to prop up essential local services.

Local government is the government that touches all of us every day, even if we don’t always realise this. The new Labour government will need to focus on this issue for the benefit of every individual, community and region.

How Cambridge MC can Help Local Councils

If you are currently working in local government and are feeling the impacts of the economic crisis as outlined here, the Public Sector and Education team at Cambridge Management Consulting can work with you and your council to alleviate some of this pressure in both the short- and long-term.

Our skilled procurement and contract management team can help you reduce costs; our programme and project management function offers fractional or interim leadership and full lifecycle support for challenging transformation projects; and our process and change management teams can help with process re-design and automation.

We can also support your organisation with a range of cyber security issues you may be facing; potential or live, and our Digital and Innovation team can help solve your problems in new ways, using the latest technology to improve outcomes for your residents as well as reducing costs.

Led by Craig Cheney, previous Deputy Mayor of Bristol City Council, our service combines an in-depth knowledge and awareness of the Public Sector, its operations, and challenges, with a business approach to help you identify and evaluate obstacles and opportunities for movement within your budget. 

Learn more about Craig and our Public Sector & Education service, and get in touch with our professionals at https://www.cambridgemc.com/public-sector-and-education, or use the form below.