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It is not hard to guess a motive for the recent theft of 12,000 litres of diesel fuel from a Leeds City Council depot, reported by The MJ last week.Diesel's value has soared since the outbreak of hostilities between Iran and the US-Israeli alliance at the beginning of March.However, despite a ceasefire between the two sides, a stalemate has descended as the conflict enters its third month.Both the Iranians and the US are blocking passage of ships through the Strait of Hormuz, through which around a fifth of the world's liquified natural gas and oil normally transits.With President Donald Trump signalling that the US blockade of the pivotal strait may continue for months, average oil prices have hovered around an average of $100 per barrel over the last month, around 50% higher than pre-crisis levels.Geoff Tucker, group business development director at the Norfolk CC-owned outsourcer Norse Group, reckons that heavy vehicles have a fuel economy of only about 10 miles per gallon. ‘We've got a fleet across the country of about 2,500 vehicles. The impact of the additional fuel cost is going to be well over a million a year and it's very hard to recover that.'Stephen Jones, director of Core Cities UK said his big urban authority members are all preparing responses to the latest economic and energy shock to hit English local government.The first dimension of this response is dealing with the financial costs of an expected fresh surge of inflation, he said.The most immediate impact on local authorities is the rising cost of fuel. Analysis of the RAC's index of diesel and petrol prices, published last week by the Association for Public Service Excellence (APSE), shows that the impact of the latest supply crunch does not yet match that caused by Russia's invasion of Ukraine in 2022.Diesel has not hit the £2 mark seen four years ago, while the petrol price is ‘significantly lower', it shows.However there's ‘no sign' of the higher prices seen over the last month ‘significantly dropping', said Mo Baines, APSE's chief executive.‘We've embedded those high prices and that could continue for the next few months, which will add to the financial pressures on councils [of prices] that never go down as fast as they go up.'The cost of diesel is of course a particular problem for councils because they rely on heavy vehicles for essential services, like waste collection and school transport.Feedback to APSE's survey shows that recent price increases have increased pressures on local authority budgets.Geoff Tucker, group business development director at the Norfolk CC-owned outsourcer Norse Group, reckons that heavy vehicles have a fuel economy of only about 10 miles per gallon.‘We've got a fleet across the country of about 2,500 vehicles. The impact of the additional fuel cost is going to be well over a million a year and it's very hard to recover that.'Local authorities also run fleets of vans for tasks like property maintenance and many run taxi contracts to provide transport for children and young and people who are disabled or have special educational needs.A Society of County Treasurers (SCT) spokesperson said it is still ‘too early to assess the full impact on council finances'.Ian Miller, chief executive lead on finance for the recently established Local Councils Network, agreed, noting that the increased cost of fuel has not had ‘much' impact at his own authority of Wyre Forest DC so far.‘While fuel prices have gone up, the amount we spend on fuel is not massive in the scheme of things', he said, estimating that the current crisis may add about £75,000 to the authority's annual £300,000 fleet fuel budget.Increased energy prices are likely to feed through in other ways, he said: ‘Ultimately, it's an inflationary pressure and just like the inflationary spike we had after Russia's illegal invasion of Ukraine and previous inflationary spikes, they hit local government.'An example is how the 2022 crisis led to a spike in the construction raw materials required for capital projects, the Wyre Forest chief executive said: ‘Councils will be protected if they've already let a contract but the next time you come to a contract in three months or six months, you will have to pay whatever the market rate is at that time.‘Down the track, this creates a problem if budgets are fixed: your pound will go less far particularly in things like capital projects.'The SCT spokesperson said higher inflation is likely to feed into interest rate hikes, which in turn will have an impact on the costs of borrowing and any large infrastructure projects.One of the big factors shielding councils immediately is that many have bought fuel or energy in advance.Most councils belong to one of local government's collective purchasing consortia, which enable their members to get better deals than those available on the open market, according to Miller.Baines said those councils that rely on fuel cards to fill up at local garages will probably be feeling the pinch but most are on fixed price frameworks or have bunker stores.Tucker said councils will typically be hedged six months ahead for fuel costs.But while frameworks will offer protection against immediate cost increases, they cannot provide protection for ever, said Baines: ‘At some point, those prices will be recovered by the markets.'This means any eventual drop in prices is unlikely to be seen rapidly by authorities operating such arrangements, she added.Tucker said: ‘The contractors are going to come along with very significant price increases and the councils are going to end up paying, one way or the other whether they are inhouse or outsourced.'And it's not just councils that face rising fuel costs but their many staff who rely on their own transport to travel to and from work, he pointed out.Tucker has already seen a couple of councils adopting a more relaxed stance to allowing staff to work from home in order to cut commuting costs.Some staff, such as environmental health and licensing officers, cannot avoid travelling to do their jobs, Miller pointed out.Such travelling costs will have to be reimbursed via expenses, adding to the financial pressures authorities are under.Social workers and carers using their own vehicles to visit vulnerable child or adult clients creates further cost pressure, particularly in rural areas, said Phil Holmes, president of the Association of Directors of Adult Social Services (ADASS).‘Care workers who deliver care and support to people in their own homes are increasingly worried about fuel prices.‘ADASS has picked up that certain providers are getting more requests from staff for support with their fuel costs. The situation is more acute in rural areas where there are larger distances to cover and limited public transport options', he said, adding that residential care settings are also facing rising costs for electricity, gas and heating oil.Cost of living increases will also fuel demands for higher pay, according to Tucker: ‘Particularly in a fairly unionised sector, there's going to be pressure to pay higher wages.'Unison head of local government Mike Short, said: ‘Worsening cost of living pressures on council workers...mustn't stand in the way of staff being paid fairly and receiving a decent pay rise'.Increased inflation and reduced economic activity will also hit the communities that councils serve.The Government's new Crisis and Resilience Fund (CRF), which replaced what was meant to be to be the temporary Covid-era Household Support Fund, kicked in at the beginning of April.A total of £1bn has been earmarked annually for the next three years for councils to award in grants to households who are in hardship, such as following the loss of a job.Wyre Forest has yet to see an uptick in such welfare claims, said Miller: ‘There's no indication yet that we're heading to that territory but who's to say where things might be in two or three months' time if inflation ticks up to 4% or even 5%.'However the CRF's budget was set before the outbreak of the Iran conflict, which is likely to result in ‘even more calls' on the fund than anticipated when it was set up. He added: ‘If lots of people are asking for assistance and the money is running out very quickly, I'm sure we'll see reports of council saying they've had to close their funds because they've used up all the money that the Government made available.'And the longer the stalemate in the Gulf continues, the more concerns will grow not only about energy costs but security of supply, said Core Cities' Jones. ‘The cost pressures are with us now. Whether that then translates into genuine shortages of diesel in the autumn depends on if the strait will open.'Baines said authorities are altering their procurement strategies to ensure stocks are not depleted to the ‘absolute minimum', such as keeping tanks topped up to 70% rather than 50% levels, for example.Such measures could give councils more leeway to put in place business continuity plans if shortages become acute, she added.While agreeing there is no need to panic yet, councils must be prepared for such an eventuality, said Tucker: ‘If the signs are it's going to last a long time, then there's going to have to be a rethink. We're already looking at how can we re-engineer services.‘If services are outsourced, councils may have to get the providers in and say if we can't give you a load more money, we're going to have to find ways of paring back services.'Reducing waste collection frequencies, for example, reduces the number of miles fleets must cover each week, saving fuel and cash, he said.One respondent to APSE's survey pointed out how councils' fuel reserves could be eked over much longer periods, if operations are reduced to just providing essential services.However there are pitfalls in paring back services, said Baines, pointing out how councils will be hit in the pocket if they cut back on recycling as liability for the emissions trading scheme is extended to waste.Councils will be pinning their hopes on the conflict ending soon, she concluded: ‘The general pattern we're seeing is people scraping by and hoping it ends quickly.'

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FINANCE

Crude reckoning

By David Blackman | 05 May 2026

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