6 March 2025A new report from the Local Government Information Unit (LGIU) has revealed concerns about the impact of the government’s reorganisation plans with fewer than 1 in 4 saying they think it will improve council finances. Only 1 in 10 believe they have been adequately involved in the reorganisation process and just 1 in 5 officials think the timescales for reorganisation are deliverable. Fewer than 1 in 5 believe that there has been sufficient clarity thus far.
The 2025 State of Local Government Finance report found that fewer than 1 in 10 senior council figures are confident in the sustainability of local government finance with surging service demand being the greatest pressure on local government finance (a major problem for over 90% of councils). Local government reorganisation and National Insurance Contribution rises also represented significant new pressures on councils’ already overextended finances.
Published annually since 2012 – the survey found 6% of councils could face effective bankruptcies this financial year unless the government makes more urgent and radical reforms. That figure jumps to 35% of councils that could issue section 114 notices by 2030 without further changes.
This anonymous survey of council leaders, chief executives, chief finance officers and cabinet members for finance, shows that councils will take an array of income-raising measures in the next financial year just to make ends meet. These include increasing council tax (94%), fees and charges (88%), and borrowing (22%). Nearly two-thirds of councils will also reduce spending on services (63%), although many will make savings through the restructuring of services (47%). Alarmingly, most councils will draw from their reserves this year (56%) – the second successive year for nearly half of our respondents (49%).
When looking at reform, the report found near-total consensus in the sector for the introduction of multi-year financial settlements (92%), very strong support for council tax reform (77%) and a greater fiscal toolkit (~75%). Satisfaction with the UK government’s performance around reform is notably higher than last year, yet remains low across an array of issues (~25%).
LGIU’s research in other nations shows that without more radical reforms, the crisis in the sector will continue. A sustainable local government funding system requires financial allocations that match demand and a broader fiscal toolkit. The government must therefore afford greater fiscal freedoms to local authorities, such as tourism taxes, local sales taxes, and other measures that are common across the world. And, to better align policy priorities, measure progress against key aims, and highlight the impact of reform – the government must work with mayors and leaders to develop formal communication structures, more clearly defined roles for councils in delivering the government’s ‘missions’, a standing commission focused on reorganisation, and a systematic and robust approach to gathering and sharing data.
Jonathan Carr-West, Chief Executive, LGIU, said: “At the end of last year, the government was clear that devolution, reform of the local government finance system and public sector reform should go hand in hand. Our survey shows in quite stark detail that they are not currently aligned in any meaningful way.
On the one hand, the government has had some success in resetting the central-local relationship and there is near consensus that the promised multi-year settlements will benefit council finances. Conversely, many councils are anticipating that reorganisation and the increase in National Insurance Contributions will heap added pressure onto already overextended council budgets.
And, to put it bluntly, respondents are not happy with the way that reorganisation is being carried out. The vast majority feel that the government is not providing enough clarity, enough genuine involvement for councils in the process, or realistic timeframes. And, critically, most do not believe that it will solve the financial problems that councils face.
But these are by no means insurmountable problems. The LGIU has strongly argued for a number of practical measures that would go a long way toward addressing many of these concerns, including a standing commission focused on local government reorganisation, clearly defined roles for councils in delivering the government’s five ‘missions’, and a plethora of proven-to-work revenue-raising options for councils to draw on.
We have a once-in-a-generation opportunity to recalibrate English local government and reconfigure the local government finance system so that councils can be the democratic engines of opportunity that our communities need. And it can be done. The government’s commitment to reform is to be commended and we stand ready to support them and the sector as we continue on this journey together.”
The LGiU report reiterates some of the points made last week by the National Audit Office (NAO) in its assessment of Local government financial sustainability. There are widely felt pressures, principally in social care and social housing. Those services which are at risk from competing priorities are green spaces, leisure and cultural services. Most authorities are actively considering the sale or transfer of community assets.
