England’s largest councils are today warning that the Chancellor’s Spending Review will ‘make or break’ their budgets, with six in ten councils not confident of setting a balanced budget next year as they face a £2.2bn funding black hole and uncertainty on future funding allocations for rural councils.
The warning comes in a survey of 38 county and rural unitary councils by the County Councils Network (CCN) and the Society of County Treasurers (SCT), which sets out the stark financial challenges facing England’s largest councils.
This year, councils are making an unprecedented £1.2bn of savings and cuts to services to balance their books. This is due to record demand for services and has been compounded by central government funding decisions. The survey reveals that government compensation for the rise in employer’s National Insurance has covered just 40% of the costs of introducing the policy, while just three of these 38 councils received any of the government’s £600m ‘recovery grant’ (£20m) – which was heavily targeted at metropolitan councils.
However, the survey reveals cost pressures won’t ease up in county and rural areas – with surging demand and higher costs creating a further £2.2bn funding gap next year, which will have to be filled by additional government funding, council tax rises or service cuts. This revenue budget gap comes on top of an estimated £2.7bn in special educational needs (SEND) deficits, which are due to hit council budgets next March when a statutory accounting ‘override’ comes to an end.
With those councils warning that further options for service cuts have been exhausted, six in ten councils are not confident of setting a balanced budget in 12 months’ time.
But CCN say the situation could be made worse if the Chancellor does not make more funds available, with councils in rural areas potentially facing a ‘double whammy’. That’s because the government plans to permanently change the funding allocations of councils, with the ‘review of relative needs and resources’ – due to conclude later this year – potentially redistributing hundreds of millions of pounds towards urban councils.
With rural councils losing over £100m in dedicated funding last year, county and unitary councils say a multi-billion injection of resources is needed to ensure that that these councils do not lose even more funding as part of reforms to be introduced next year, which would exacerbate their financial pressures.
CCN says that with councils already facing a £2.2bn shortfall next year, alongside billions in SEND deficits, any reductions to county and unitary authorities’ funding could lead to further cuts to local services and potentially trigger a wave of councils applying for exceptional financial support to avoid them declaring bankruptcy.
Therefore, the Spending Review is critical for the future of local services. CCN says councils need a significant injection of long-term funding for social care services to allow them to invest in and protect frontline services, alongside a sustainable solution to SEND deficits. CCN also says that the government must deliver an ‘evidence-based’ approach to funding reforms when it consults later this year, ensuring a fair outcome that recognises the needs of social care authorities in rural areas and a well-funded transition so that reforms do not lead to further reductions in income for these councils.
Cllr Tim Oliver, Chair of the County Councils Network, said:
“England’s largest councils head into the Spending and Fair Funding Reviews under considerable pressure and under a great cloud of uncertainty.”
The Chancellor’s decisions will make or break the budgets of county and rural unitary councils: in a year where we’re already making unprecedented savings and face a further £2.2bn shortfall in 2026/27.
“It is almost unthinkable to imagine the situation getting worse, but a real-terms cut in the Spending Review for the Ministry of Housing, Communities and Local Government’s Budget would be just that. For county and rural councils, it could be a double whammy, with any unfair changes to funding distribution leading to further reductions in their income.
“With so much uncertainty as to what the Chancellor will do, it is no wonder six in ten county and unitary councils are not confident of setting a balanced budget next year. Funding reductions would undoubtedly make it worse for these authorities and lead to more service cuts and councils applying for exceptional financial support. It is therefore essential county and unitary councils receive a significant increase in funding and long-term financial certainty in the Spending Review and Review of Relative Needs and Resources.”
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