The Local Government Association has called for a revision of the exceptional financial support programme, with its chair warning councils are “financially fragile”.
In its Autumn Budget submission to the chancellor the LGA said it is “concerned about the effectiveness” of EFS for those councils that are in financial difficulty.
The LGA warned EFS is “increasingly being driven by long-term system-wide trends” and “loads struggling councils with debt and/or runs down their capital receipts”.
When councils receive EFS it means they are able to borrow or sell assets to fund day-to-day spending.
The LGA called for “a broader response that addresses the underlying cost and demand pressures facing the sector” and offered to work with government to help design an “alternative mechanism”.
The submission also called for more support in alleviating financial pressures on local government and the addressing of current financial pressures.
The submission stated that those councils in weak financial positions could struggle in delivering effective services, causing longer waits in adult social care assessments, cuts to road maintenance and waste collections, as well as rising homelessness.
Financial strains
Financial issues have been a rising concern for a number of years. Since 2018 eight councils have effectively declaring bankruptcy by way of section 114 notices, four of those occurred between 2022 and 2023.
Since then EFS has granted to several councils that have warned they may need to issue a 114 notice if they do not get EFS.
In February 35 councils were granted EFS from a total funding package worth £1.5bn. Of the 15 assurance reviews conducted by Chartered Institute of Public Finance & Accountancy last month, just one authority was likely to end its reliance on EFS for the 2027-28 financial year.
At least 20 councils are also predicting 2026-27 overspends in their latest financial reports, with the number not including those who plan to use EFS support from central government to plug budget gaps.
The LGA said the whole sector was facing financial pressures. The LGA is predicting that by 2028-29 overall spending power will have fallen by nearly 20% when compared with 2010-11.
‘Meaningful fiscal devolution’
The previous chancellor, Rachel Reeves, promised to use this Budget to set out a path for further fiscal devolution.
The LGA suggested “meaningful fiscal devolution” was needed and that councils should get revenue raising opportunities. This could include both current methods, such as sales and charges, but also how “new sources of income” could be “retained locally”.
Another objective was for the government to deliver on commitments to reduce statutory duty burdens on local authorities, and conduct sales, fees, and charges reviews.
The LGA suggested further funding reform, with an all-party review, including a review of council tax and the viability of business rate retention as a funding model. It went on to say government should reconsider plans to use councils to implement the high value council tax surcharge.
Government ‘needs to fix the local foundations first’
Eamonn O’Brien (Lab), chair of the LGA, said: “The prime minister is right to identify that the imbalance between national and local government is holding back growth. But you cannot devolve power if the foundations are financially fragile.”
He added: “If the government wants national, regional and local growth, it needs to fix the local foundations first.
“Strong, capable and financially sustainable local authorities are essential to deliver on our shared priorities for health, housing and giving people every opportunity to thrive where they live.
“Genuine devolution needs to reach every part of the country and every level of local government.”
The government is set to announce the autumn Budget on 28 October.