Council finances in dire straits, MPs say
Councils could run out of money in 2026 due to unsustainable book balancing methods, according to parliamentarians.
The hike in national insurance contributions (NIC), combined with spending on special educational needs and disabilities (SEND), has squeezed local council finances, a new report by the Public Accounts Committee (PAC) has found.
Despite Reform’s DOGE campaign, they declined to comment on these findings on potential council “wasteful spending.”
PAC chair, MP Geoffrey Clifton-Brown, said that while the government claims to be concerned about local authority finances, “the lack of urgent action … to address the fast-approaching cliff edge for under-pressure authorities would seem to suggest it is comfortable with the current state of affairs as normalised background noise.”
Clifton-Brown suggested that the government should use funds from its Spending Review cash splash to fix the longstanding issues revealed when scrutinising council finances.
He added that the government’s plans for sweeping reforms will be hindered by the fact that “local authorities do not have good and strong capacity to fundamentally change the way they work.
Jobs tax strikes in government’s ranks
Increasing the rate of tax employers pay on each employee’s earnings from 13.8 per cent to 15 per cent, and almost halving the threshold at which they do so, is costing not only businesses, but councils as well, according to the PAC.
The Treasury put £15m aside for local authorities earlier this year to support them in paying higher taxes on their employees. The “jobs tax” uplift will have effects on “small charitable organisations, and knock-on effects to the markets, such as in Adult Social Care,” the PAC report argued. This could lead in private providers foisting cost increases to local authorities or walking back on contracts.
The report finds that – “unacceptably” – the government did not assess these tax raid’s impacts on councils in a rush to raise public funds in the Autumn Budget.
Clifton-Brown said that introducing these changes to NICs “without taking into account the likely effect on an already tottering local government sector” was a big mistake on the government’s part.
Bang for Buck? Who knows
The PAC report found that the local authorities spent £72bn on local public services in 2023-2024, but there was a lack of information as to whether this money is being spent effectively. Only a quarter of local bodies had up-to-date external audit assurance on their 2022-23 financial statements.
Only half of education, health and care plans were issued within the 20-week statutory limit in 2023, and the Ministry of Housing, Communities & Local Government doesn’t track the outcomes of local authority spending.
A reason for the slapdash public spending has been, according to the PAC, an “overly complex” system, where policies compete against each other, and various funding streams overlap.
There are several hundred small funds with very specific purposes that are available to local governments, but securing these require local authorities to undertake substantial paperwork.
The PAC suggests these are consolidated in the upcoming Budget.
The government’s new Office for Value for Money is planned to make cuts to a bloated public sector.
But Reform UK says it’s not enough, instead preaching the transformation that DOGE’s “army of volunteers” will bring to local governments.
A stitch in time saves nine
Funding could be mobilised more effectively if councils were able to invest more in prevention rather than fixing problems post-facto.
Local authorities spend more on – more urgent – late intervention when it comes to children’s social care services, to the tune of £12.1bn. Early support only sees £2.8bn, despite an increase in children entering the care system.
This is true for preventative health services and tackling homelessness, too, the PAC said.
SEND
The PAC has warned the government is unprepared to help councils after a “short-term workaround” is no longer feasible. Since 2021, the government has allowed SEND-related deficits to be excluded from councils’ main budgets – but by 2028, spending on SEND could reach £2.9bn-£3.9bn a year. This loophole is in place until March 2026.
More plans on SEND reforms are expected by this autumn, but the PAC is demanding more urgent action.