Fears raised over near-£3 billion English councils shortfall amid Shropshire Council budget pressure
Councils in England face a funding gap of almost £3 billion over the next two years just to keep services standing still, the Local Government Association has claimed.
The LGA – which began its annual conference in Bournemouth on Tuesday – is warning that inflation rates pose a further danger to the financial sustainability of local services.
It is calling on the Government to ensure councils have adequate resources to meet ongoing cost and demand pressures, protect local services from cutbacks and invest in improving the services our communities rely on.
It comes as Shropshire Council is facing huge pressure on its finances, with a target to save more than £50m to deliver a balanced budget this year.
Last month an LGA review of its financial situation expressed concerns at the council's need to make 95 per cent of its planned savings just to avoid depleting its reserves entirely.
It said such a situation would threaten the solvency of the authority.
The LGA analysis on cost pressures facing councils reveals that the cost to authorities of delivering their services at current levels will exceed their core funding by £2 billion this year – and £900 million in 2024/25.
It said that if inflation fails to fall in line with the forecast at the March 2023 Budget, and instead is in line with more recent inflation projections from the Bank of England, this would add an extra £740 million in cost pressures this year and an extra £1.5 billion in 2024/25.
Those costs would be the funding needed to maintain services at their current levels and would not address areas which council leaders say need more support, such as the adult social care provider market, children’s social care and homelessness.
The LGA said councils will need to consider options such as making cutbacks to services or using reserves to meet their legal duty to balance the books this year.
Councils hold reserves so they can plan for the future and deal with known risks.
They can only be spent once and the LGA is warning that using reserves to plug funding gaps is not a solution to the long-term financial pressures that councils face.
The Government has confirmed some funding streams for councils over the next two years.
However, significant uncertainties remain in the level of funding they will have in 2024/25 which the LGA says is hampering financial planning and their financial sustainability.
Councillor Pete Marland, chair of the LGA’s Resources Board, said: “Inflation, the National Living Wage, energy costs and ongoing increasing demand for services are all adding billions of extra costs onto councils just to keep services standing still.
“Councils’ ability to mitigate these stark pressures are being continuously hampered by one-year funding settlements, one-off funding pots and uncertainty due to repeated delays to funding reforms.
“The Government needs to come up with a long-term plan to sufficiently fund local services. This must include greater funding certainty for councils through multi-year settlements and more clarity on financial reform so they can plan effectively, balance competing pressures across different service areas and maximise the impact of their spending.”
