£50bn black hole for councils over next six years

Councils in England could face a funding black hole of over £50 billion over the next six years, with local authorities warning they will have to resort to providing the ‘bare minimum’ if no extra funding is made available.

This is according to an independent analysis of councils’ financial sustainability up to 2025 from PricewaterhouseCoopers LLP (PwC), released for the County Councils Network (CCN). The research concludes that rising demand for services and rising costs, driven in part by inflation, could contribute to councils needing an additional £51.8 billion of funding over the period 2019-2025.

Therefore, county council leaders are  warning that yearly council tax rises, using their reserves, and making services more efficient and productive, will not be anywhere near enough to fill the funding gap; which means that councils will have to set out further rounds of ‘draconian’ cuts to local services, providing a basic, ‘bare minimum’ core offer to residents.

Furthermore, filling this funding gap only keeps services ‘standing still’ – rather than improving or enhancing them, nor reversing the last nine years of cutbacks. If councils raise council tax by 2.99 per cent each year, the cumulative funding gap will still be over £30 billion.

The CCN argues that the findings demonstrate the need for the government to provide councils with a significant funding boost in this year’s anticipated Spending Review over the next three years or provide immediate clarity and emergency funding for next year if the review is delayed owing to Brexit uncertainty. The funding gap for this current year alone stands at £4.8 billion.

Specifically, PwC’s analysis found that county authorities, which make up 46 per cent of England’s population, face the largest funding pressures and are most exposed to financial risk – with limited ability to raid reserves or to raise fees or introduce charges for certain services. The report also outlines that those counties bear the brunt of funding pressures into next decade, fuelled by rising costs for delivering services and rising demand for them.

Paul Carter, chairman of the County Councils Network, said: “Counties are most exposed and least able to address these financial pressures – local government is at the limit of its elasticity. Therefore, this Spending Review is crucial if we are to protect and enhance services. If government does not provide additional funding for councils over the medium term, many local authorities will resort to providing the bare minimum, with many vital services all but disappearing, particularly preventative services. Even these draconian cuts won’t be enough for many well-run councils to balance the books and it will leave our finances in disarray with many of us struggling to deliver even the basic level of local services.

“With the Ministry of Housing, Communities, and Local Government expected to put together an ambitious but realistic submission for additional departmental funding in the Spending Review for local authorities to match population growth and rising demands and demographic pressures, particularly social services, it is imperative that the Treasury delivers.”

As well as projecting forward, the research also looked at the funding pressures facing councils over the previous four years based on councils spending need to provide ‘a more consistent level of service’. It found that county councils faced a funding gap of £5.4 billion between 2015 and 2019. Conversely, councils in London had a notional funding surplus of £2.4 billion over the same period.

The government is currently undertaking a review of council funding – called the ‘fair funding review’ - which is planned for implementation early next year. CCN argues that the review must begin to eradicate the ‘historic underfunding’ of counties.

The report, which has been released today, also revealed that: only 11 per cent of the cumulative funding gap nationally from 2020 could be plugged using council ‘rainy day’ reserves; spending on adult social care will rise by £6.1 billion nationally by 2025 compared to a decade before; spending for children’s social care will rise faster than any other local government service; and, by 2025, 78 per cent of the 36 county authorities’ spending will relate to four key service areas - adult social care, children’s services, public health and education services. Spending on these services for the rest of the country’s councils will make up 68.5 per cent of their spend.
 
Simon Edwards, director of the County Councils Network, said: “PwC’s report provides a platform for the sector to unite around ahead of the Spending Review and make a united case for additional funding, while also recognising that the diverse circumstances faced by different types of councils to influence the fair funding review.

“It is county authorities that have the most limited choices in responding to future spending requirements. We now want to take our case to the Treasury and convince them of the need to invest in all of local government, while ensuring that the government implement the fairer funding review so that residents can be provided with a more consistent level of service based on genuine need.”