William Eichler 27 February 2025

Council bailouts could ‘create longer-term risk’, warns NAO

Council bailouts could ‘create longer-term risk’, warns NAO   image
Image: TippaPatt / Shutterstock.com.

The public spending watchdog has called for a ‘whole-system’ approach to fixing local government finance and warned that short-term bailouts could ‘create longer-term risk.’

A new report from the National Audit Office (NAO) found that council funding increased by 4% between 2015-16 and 2023-24 to £55.7bn but fell 1% per person against a backdrop of increasing demand on frontline services.

The spending watchdog estimates that £72.8bn was spent by local government in 2023-24 – over half of which went on adult and children’s social care.

The NAO acknowledges that the Government has committed to reforming the funding system with spending per person forecast to increase by 7% between 2023-24 and 2025-26, but criticized ‘repeated delays.’

It also warned that the £5bn in ‘exceptional financial support’ provided to struggling councils fails to address underlying financial pressures and could ‘create longer-term risk.’

NAO head Gareth Davies said: ‘Action to address this must resolve the systemic weaknesses in local government financial sustainability through a comprehensive, cross-government approach.’

Councils have also been able to use a 'statutory override' to keep SEND deficits off their balance sheets, with the measure due to expire next March.

The NAO said that unless the Government addresses the issue before then, 43% of councils could be forced to issue Section 114 notices, declaring themselves effectively bankrupt.

Responding to the report, Cllr Pete Marland, chair of the Local Government Association’s Economy and Resources Board, said a lack of reform had left councils with a ‘complex, outdated funding system.’

The NAO also warned that the ongoing financial pressures were undermining the ability of councils to invest in prevention.

Cllr Claire Holland, chair of London Councils, commented: ‘Boroughs want to invest more into early intervention and prevention because we know this brings the best long-term results for our residents.’

Patrick Melia, Solace spokesperson for local government finance, added that the Government should use the Spending Review to develop a long-term reform plan for the sector.

SIGN UP
For your free daily news bulletin
Highways jobs

Senior Reward Consultant

Essex County Council
£60469.0000 - £71140.0000 per annum
Senior Reward ConsultantPermanent, Full Time£60,469.00 to £71,140.00 per annum Location
Recuriter: Essex County Council

Director of Resources

Dartmoor National Park Authority
£71,288 - £77,905 per annum
Dartmoor National Park Authority is the body that oversees the vibrant, living, working landscape and communities of Dartmoor National Park. Devon
Recuriter: Dartmoor National Park Authority

Business Relationship Manager

Essex County Council
£62461 - £73483 per annum + Flexible Working, Hybrid Working
Please note that visa sponsorship is not available for this role. Applicants must have a current, unrestricted right to work in the UK. This vacancy England, Essex, Chelmsford
Recuriter: Essex County Council

Social Worker - Disabled Children's Service

North Yorkshire Council
£38,220 - £42,839 per annum
As a Social Worker within the Disabled Children’s Service, you will play a vital role in a supportive and experienced specialist team Selby, North Yorkshire
Recuriter: North Yorkshire Council

Children and Families Worker – Multi Agency Screening Team (MAST)

North Yorkshire Council
£32,578 - £35,570
You will work directly with children, young people, and their families. Northallerton, North Yorkshire
Recuriter: North Yorkshire Council
Linkedin Banner