The Government’s ambition to drive economic growth through greater devolution will only succeed if it addresses the worsening financial pressures facing councils, according to the Local Government Association.
As ministers prepare to unveil a major package of devolution reforms in a forthcoming White Paper, the LGA has urged Government to ensure local authorities are placed on a sustainable financial footing to support long-term economic growth and public service reform.
The Prime Minister has outlined plans for wider fiscal devolution, alongside transferring greater powers over skills, transport, employment support, housing, innovation and public services to local areas. Detailed proposals are expected to be published following the Autumn Budget.
The LGA, which represents councils across England, says it is working closely with local authorities and strategic authorities to help shape the White Paper. However, it warns that devolution cannot be effective if councils, which are the constituent bodies underpinning strategic authorities, continue to face significant financial instability.
While councils have benefited from some funding increases in recent years and welcomed the introduction of multi-year funding settlements, the sector remains under intense strain.
The LGA estimates councils face a £7 billion funding gap by 2028/29 despite delivering billions of pounds in savings and efficiencies since 2010/11. It also highlights that one in five councils with social care responsibilities required Exceptional Financial Support from Government to balance their budgets for 2026/27.
According to the association, continued financial pressures could have serious consequences for residents, including longer waits for adult social care assessments, rising homelessness and further reductions to essential neighbourhood services such as road maintenance, libraries, parks and waste collection.
The organisation argues that without urgent action, local government’s ability to support economic growth and deliver critical public services will be increasingly compromised.
In its Autumn Budget submission, the LGA is urging ministers to take a number of steps to strengthen council finances and maximise the benefits of devolution.
The association is calling on Government to:
- Deliver meaningful fiscal devolution, including greater opportunities for councils to retain and raise revenues locally.
- Reform the Exceptional Financial Support regime by tackling the underlying cost and demand pressures facing local government.
- Reduce regulatory burdens on councils through a review of fees, charges and statutory duties.
- Fully write off historic and accruing Dedicated Schools Grant deficits and reconsider current arrangements around surplus balances.
- Ensure financial pressures within the NHS are not transferred to local authority budgets.
- Fully fund adult social care workforce reforms, including the introduction of a Fair Pay Agreement.
- Set out a clear timetable for local government reorganisation and prevent councils from bearing the costs of structural reforms.
Local government continues to play a central role in supporting local economies, with councils contributing an estimated £117 billion annually through investment, service delivery and economic development activity.
The LGA argues that councils are uniquely positioned to coordinate planning, skills development, transport, infrastructure and investment decisions, making them crucial partners in delivering the Government’s wider growth agenda.
However, the association warns that strategic authorities alone cannot deliver prosperity without strong, financially stable councils providing essential local leadership and services.
Cllr Eamonn O’Brien, Chair of the LGA, said:
“The Prime Minister is right to identify that the imbalance between national and local government is holding back growth. But you cannot devolve power if the foundations are financially fragile.
“If the Government wants national, regional and local growth, it needs to fix the local foundations first. Strong, capable and financially sustainable local authorities are essential to deliver on our shared priorities for health, housing and giving people every opportunity to thrive where they live.
“Genuine devolution needs to reach every part of the country and every level of local government. Our Autumn Budget submission sets out how, with sustainable funding and meaningful powers, local government can deliver the homes, skills, public services and opportunities for our communities."
The debate over local government funding is expected to intensify ahead of the Autumn Budget, with councils arguing that financial sustainability must be treated as a prerequisite for successful devolution rather than a separate policy challenge.
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