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Local Government Association’s Economy and Resources Board, said a lack of reform had left councils with a ‘complex, outdated funding system.’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.
