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One in six English councils at risk of financial failure

One in six English councils could run out of money as early as next year, without additional income or substantial further budget reductions, a new report warns. 

Grant Thornton’s Financial Foresight tool forecasts a £7.3 billion black hole for England’s councils by 2025/26, an increase of £4.6 billion since the beginning of this year. 

Additional Covid-19 funding – while critical to support immediate challenges – has not addressed the underlying precariousness of councils’ financial sustainability. This now faces additional pressure from rising interest rate rises and the threat of reduced funding from central government, in response to the current economic turmoil facing the country.  

Without additional income, councils will need to make savings of over £125 per head of population by 2025/26. This is more than the combined average spend per head on homelessness, sports and leisure facilities, parks and open spaces, libraries, waste collection and disposal, and recycling. 

A decade of budget pressures and changing policy demands has stifled innovation and investment in support functions such as finance, procurement and digital transformation. 

English councils have seen an uptick in total reserves following government support during the pandemic, from £24.7 billion in April 2020 to £30 billion in March 2021. However, due to factors including suppressed demand in social care, this additional funding is not enough to stop financial failure on a council-by-council basis, says the business and financial adviser.  

Suggested solutions to avert the crisis include: clarify roles and responsibilities of councils, develop a financial stability plan that is government backed and locally owned, strengthen local governance and resolve the long-awaited fair funding review for local government. 


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