Councils face more than £6bn funding gap over next two years – new LGA analysis

A new Local Government White Paper has been published setting out how a new relationship between central and local government - which provides long-term financial certainty and empowers councils - is the only way for the next government to solve the issues facing the country.

The White Paper – produced by the Local Government Association ahead of the General Election – includes new analysis revealing that councils in England now face a funding gap of £6.2 billion over the next two years. This is being driven by rising cost and demand pressures to provide adult social care, children's services, homelessness support and home-to-school transport for children with special educational needs and disabilities.

Such pressures are increasingly leaving councils with less funding to provide universal local services that people rely on every day – such as keeping streets clean, filling potholes and tackling anti-social behaviour. A recent LGA survey found two thirds of councils have already had to make cutbacks to local neighbourhood services this year (2024/25) including waste collections, road repairs, library and leisure services – as they struggle to plug funding gaps.

The LGA is calling on all political parties to commit to a significant and sustained increase in funding for councils in the next Spending Review, alongside multi-year funding settlements for councils and plans to reform the local government finance system. This year saw the sixth one-year settlement in a row for councils.

Without this, the LGA is warning that cost and demand pressures will continue to stretch council budgets to the limit in the coming years, leaving more councils of all political colours and types unable to deliver their legal duties for their residents and putting vital services at further risk of cutbacks.

However, the LGA said it is not just about local government having enough money to provide services for their communities.

The White Paper calls on the next government to urgently commission a major review of public service reform to understand how all public services can work together within their local communities, focusing on a joint approach to investing in more preventative services for people in need and reducing demands on current costly and high need services such as adult and children's social care.

Focussing on how councils, when given the powers, can shape their local areas, the White Paper also makes clear that economic growth can only be achieved if every local economy is firing on all cylinders.

To unlock the potential of people and their communities, the LGA has set out how councils can play a vital leading role in unlocking labour markets, creating jobs, plugging skills gaps and increase productivity. This includes devolving powers to run local skills and employment schemes, ending fragmented, short-term growth funding pots and backing local climate action.

Other proposals in the Local Government White Paper include:

• Giving councils and combined authorities the powers to build more affordable, good quality homes at scale for people in the areas where they are needed, with five-year local housing deals for all areas of the country that want them, combining funding from multiple housing programmes into a single pot.

• A renewed focus on prevention, including immediate implementation of the Hewitt report recommendation that at least 1 per cent of NHS spend is invested into preventative services over the next 5 years, ensuring councils can provide the right support for people at the right time.
  
  
• Reforming adult social care, ensuring it is adequately funded, with councils and the NHS working better together to support people in need, and a focus on prevention and recovery services, including support for the voluntary sector who are a crucial part of the adult social care system.
  
  
• Reviewing early years education and childcare to ensure that the workforce has the right skills and training and ensuring early years entitlements are properly funded, with councils fully resourced to deliver their statutory duties.
  
  
• Building a stronger partnership between councils, the NHS and schools, backed by new powers and a separate “inclusion” judgement in the Ofsted school inspection framework, that meets the needs of children and young people with SEND and enables more children to remain in mainstream schools.

Cllr Kevin Bentley, Senior Vice Chairman of the LGA, said:

"We all rely on local government to keep our streets clean, collect our bins, fix our potholes, build more homes, create jobs, keep children safe and support people of all ages to live fulfilling lives.

"However, a funding gap facing local services of more than £6 billion over the next two years - fuelled by rising cost and demand pressures - means a chasm will continue to grow between what people and their communities need and want from their councils and what councils can deliver.

"On July 5, the next government will be faced with many challenges, whether it is building more affordable housing, improving care for adults and children, reducing homelessness, boosting inclusive growth or tackling climate change.

"Local government's offer to the next government is huge. Respect us, trust us and fund us. By working together as equal partners, we can meet the fundamental long-term challenges facing our communities.”