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Local services face almost £6.5 billion funding gap by 2025: New LGA analysis

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Local services in England face an overall funding gap of almost £6.5 billion by 2025, new analysis by the Local Government Association ahead of the Budget reveals today.

The Government responded to the LGA’s call to provide councils with desperately-needed new funding this year, alongside council-tax raising powers and the continuation of key government grants.

This has halved the funding gap councils face in 2020/21 compared to last year. It means councils will be able to meet extra demand and cost pressures they face this year.

Having lost nearly £15 billion in central government funding in the last decade, many councils continue to face significant challenges when trying to set budgets this year and protect services from further cutbacks.

After a reduction in the funding gap in 2020/21, LGA analysis shows that rising cost pressures and unprecedented demand for services – in particular adult and children’s social care and homelessness support – will see the funding gap facing councils in England rise again from 2021/22 before it reaches almost £6.5 billion by 2025.

By the middle of the decade the funding gap facing vital adult social care services supporting older and disabled people alone will reach £3.9 billion – making up almost two thirds of the overall gap.

It comes as next week’s Budget marks 90 days since the General Election.

The LGA is calling for the Government to use the Budget to urgently progress the cross-party talks on the future of adult social care, pledged by the Prime Minister to start within the first 100 days of his new government.

It also needs to pave the way for the Spending Review to provide a long-term, sustainable funding solution for our local services. Every pound invested by government in council-run services will benefit communities, improve lives and relieve pressure on other services like the NHS and welfare.

Councils also need urgent clarity about the timing and implications of the planned Fair Funding Review and how the Government’s fundamental review of business rates will impact on reforms to allow local government to keep more of business rates income collected locally.

Business rates account for around a quarter of all council spending power. Communities cannot afford one of the main methods of funding local services to be dragged through years of debate and wrangling.

It is imperative that the Government works closely with local government as part of its review of the business rates system and that the impact on how local services are sustainably paid for must be one of its central considerations.

Cllr James Jamieson, Chairman of the LGA, said:

“This year’s positive funding settlement will help councils meet the rising cost and demand pressures they face this year. This means more older and disabled people able to live the lives they want to lead and more of our most vulnerable people can be supported.

“This is only a one-year settlement.

“Councils continue to face severe funding and demand pressures that continue to stretch local services to the limit and a funding gap that could reach almost £6.5 billion by 2025.

“The Budget and the Spending Review need to provide a sustainable, long-term funding settlement for councils which means they can improve services and not just keep them going.

“With long-term investment, councils can protect local services, improve the lives of their communities and meet the significant ongoing pressures they face both now and in the future.”

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