Local government finance has been in crisis. High profile cases have been highlighted in 2022 for example, Europe’s largest local authority, Birmingham City Council, was one high profile example. Other notable examples include Nottingham City and Woking Borough Council. This follows a total seven local authorities to issue a section 114, Starting with Northamptonshire County council on the 2nd of February in 2018, to Nottingham City Council on the 29th of November 2024.
Of course, in law, local authorities cannot go bankrupt, a section 114 notice simply indicating that the council’s forecast income is insufficient to meet its forecast spending for the following year, and that it must therefore take immediate action to address the shortfall. No new spending commitments can be made, and they must meet within 21 days to discuss what to do next.
There are a variety of reasons often touted as issues that cause this situation, this includes increasing populations, higher overall demand on social care and reduced government grants, limitations on annual council tax increases and a growing housing crisis which often puts local authorities under immense pressure.
In short, these challenges have often been a complex mixture of increased demands and pressures, with core spending power falling since 2010 due to austerity. The most significant reductions being implemented under the coalition government of 2010 and 2015. According to the House of Commons research library, since 2019/20, core spending power has increased, but it remains below its 2010/11 levels. [1]
Note: Real-terms adjustment uses GDP deflators, smoothed across the years from 2019/20 to 2021/22 to remove pandemic-related distortions
Sources: Library calculations based on DHLUC, Final local government finance settlement: England, 2024 to 2025, 5 February 2024, and earlier editions; OBR, GDP deflators, May 2024
According to the National Audit Office estimation in 2018, English local authorities spending power fell by 29% in real terms between 2010/11 and 2017/2018.
What does this mean for community safety?
Increasing pressures, and stretched budgets, translates into difficulty meeting the ever-growing needs of local authorities, their legal obligations, and the growing struggles of community safety. Police recorded 1.2 million incidents of ASB in the year ending June 2022, with research suggesting more than half of victims or witnesses to ASB do not report it, this could be a significant underestimate. Almost a third of people polled by YouGov think that the government should spend more on crime and policing, with only the NHS and education/schools receiving more support for greater spending. [2]
Of course, then, community safety continues to be a growing need and desire from the public, and a growing responsibility for local authorities. There has been rising issues such as county lines, knife crime, impact of migration and asylum on community cohesion, online challenges, domestic abuse, and growing concerns about anti-social behaviour. However, as articulated by the Local Government Association (LGA), capacity for this work has reduced, central funding has been withdrawn there have been reductions in local government funding which has led to cuts in the early intervention family and youth services that can help tackle ASB, and other prevention strategies.
Long-term stable investment in community safety, and early intervention, is pressing to strengthen communities, however this has been lacking many years since 2010. [3]
Provisional Local Government Finance Settlement
All this background, then, helps cast a light on why the Provisional Local Government Finance Settlement, announced on the 18th of December 2024 by the Ministry of Housing, Communities and Local Government (MHCLG), is particularly noteworthy, and in many ways, positive as we head into the new year.
The local government finance settlement is the annual determination of funding to local government from central government. The provisional settlement was announced on the 18th of December, the LGA expects the final 2025/26 settlement to be introduced before the House of Commons, for its approval, in late January or early February 2025.[4]
There is an ongoing consultation as part of this settlement, and the Funding Policy Statement, which was published on the 28th of November, committed to update the assessment of local resources form 2026/27. The consultation seeks views from representatives of local government, on proposals for the local government finance settlement for 2025-26. This will last until the 15th January 2025 and is available for view here: https://www.gov.uk/government/consultations/consultation-provisional-local-government-finance-settlement-2025-to-2026/consultation-provisional-local-government-finance-settlement-2025-to-26
In response to the announcement, the LGA have published a media response, stating:
“Extra funding for councils next year will help councils meet some - but not all - of the pressures they face in adult and children’s social care, homelessness prevention and support for children and young people with special educational needs and disabilities. Councils of all types will continue to struggle to balance the books next year with many having to increase council tax bills to bring in desperately needed funding but still being forced to make further cuts to services.
It is good that the Government has provided details of how it will compensate councils for direct costs they will face through increases in employer national insurance contributions (ENICs). However, this falls short of the £637 million we have estimated it will cost councils next year. We have also warned that indirect ENICs cost increases, through commissioned providers, will cost councils up to an extra £1.13 billion next year. While we are pleased that councils will receive extra social care funding, which will help towards these indirect costs, we continue to worry about the impact the ENICs rise will have on the organisations that the sector relies on to deliver vital care and support, especially smaller charities and providers. As we have warned, alongside more than 100 organisations this week, this will exacerbate the already unsustainable pressures facing vital local services.” [5]
Police Funding:
The figures from central government indicate that the total core spending power will rise by a percentage point of 6 in 2025/26. This does not include the £515 million funding for National Insurance because of increased contributions.
Police funding will, overall, rise by up to £987 million, compared to the 2024/25 funding settlement, this is assuming police and crime commissioners raise council tax by the maximum permitted by the referendum principle of £14. [6]
The Home Secretary, Yvette Cooper, announced these further police funding, part of the government’s Plan for Change, which will take total funding up to £19.5 billion for next year. It was announced that the majority of this funding, will be given to Police and Crime Commissioners, which will allow them to help tackle crime in communities and deter and prevent antisocial behaviour. According to the Home Office, this equates to a cash increase up to 6.0% and a real terms increase of 3.5%. [7]
Home Secretary Yvette Cooper stated:
“Today’s settlement provides a substantial increase in funding for policing to help deliver on this government’s Safer Streets mission. This vital funding boost will enable forces to kickstart the recruitment of neighbourhood police officers and crack down on the crimes blighting our high streets and town centres.
We recognise the financial and operational challenges that police forces across the country have faced in recent years, and that is why we are providing a significant and much-needed increase in funding to help forces protect the public and keep our streets safe.
We will also work closely with forces at a national and regional level to maximise efficiency and innovation, so that every penny they receive goes as far as possible and provides real value for the public.”
Closing
The provisional funding settlement gives a lot of optimism and hope for the safeguarding of communities in the coming new year. An increase in real terms funding and investment is much needed; local authority members have expressed the difficulty posed with a lack of resources.
Despite the optimism of this settlement, local authorities, and the public finances, still face significant challenges, and we must therefore continue to work out solutions to ever growing problems the UK faces when it comes to safeguarding and bettering our communities.
As the final 2025/26 settlement is to be introduced before the House of Commons, we will make sure to track ongoing relevant developments.
[1] https://commonslibrary.parliament.uk/why-are-local-authorities-going-bankrupt/
[2] https://www.local.gov.uk/make-it-local-making-our-communities-safer#_ftn1
[3] https://www.local.gov.uk/make-it-local-making-our-communities-safer
[4] https://www.local.gov.uk/parliament/briefings-and-responses/provisional-local-government-finance-settlement-202526-day#new-homes-bonus
[5] https://www.local.gov.uk/about/news/lga-statement-provisional-local-government-finance-settlement-0
[6] https://www.local.gov.uk/parliament/briefings-and-responses/provisional-local-government-finance-settlement-202526-day
[7] https://www.gov.uk/government/news/billion-pound-funding-boost-for-police-to-keep-streets-safe
