More than a third of councils – and almost half of social care councils – responding to a new Local Government Association survey say they are likely to have to apply for emergency government bailout agreements to set budgets in the next three years.
While funding levels have risen over the last few years and multi-year settlements provide much-needed certainty, costs and demand pressures continue to outstrip the overall amount of funding available to councils.
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 LGA survey shows budget-setting will be another hugely challenging task for many councils this year and beyond.
The survey found that almost 6 in 10 councils told the LGA it will be fairly or very difficult to set a balanced budget in 2026/27.
While 8 in 10 councils feel they will be able to meet their minimum legal duties in 2026/27, this number halves to 43 per cent by 2028/29.
More than a third (34 per cent) of councils have already applied or are very or fairly likely to apply for Exceptional Financial Support (EFS) in at least one of the financial years between 2026/27 and 2028/29.
These EFS arrangements have allowed councils to cover day-to-day revenue costs by borrowing or with capital receipts. In some cases, this has seen councils able to increase council tax above current referendum limits.
However, the LGA insists these arrangements are not a sustainable way of managing council finances and plugging funding gaps.
The LGA is calling on government to provide a significant increase in resources in the imminent final Local Government Finance Settlement to protect the financial sustainability of councils and our local services and empower councils to unleash growth and service reform at scale.
It said government also needs to commit to deeper, long-term reform of local government finance, including a cross-party review of council tax, business rates retention and other funding sources.
Councils also urgently need clarity on SEND funding and a credible plan to address growing high-needs deficits, which are the result of structural under-funding.
Cllr Louise Gittins, LGA Chair, said, “This research underlines the reality facing councils.
“Councils are doing everything they can to protect the services people rely on but demand and costs continue to rise faster than funding, leaving many with no choice but to consider emergency financial support.
“Short-term fixes will not address these challenges. Councils need sustainable funding and reform so they can focus on prevention, growth and delivering the services communities expect.”
