Local authorities estimate their budget shortfalls will reach £9.3bn by 2026-27, adding another bleak forecast to existing reports of their financial distress. Crisis in local government is nothing new. But our understanding of the geography, institutional and political dimensions of the contemporary funding gaps has been limited.
Drawing from the medium-term financial strategies published by each of the 317 local authorities across England, Mapping the Gaps shows how geography matters. Structural issues are common and shared, but their local configurations are playing out for specific local authorities in particular places. Demography, economy and location among other local factors shape their challenges. Financial strategies underpin their capacity to cope.
This finer-grained understanding of the landscape of financial distress can help us fix the broken funding system by highlighting the geographical differences and warning against one-size-fits-all solutions.
Mapping the Gaps finds that almost all – 303 of England's authorities, equivalent to 96% – forecast a funding shortfall by 2026-27. Only 14 (or 4%) estimate a balanced budget or surplus.
Regional variations exist, with London and the South East the worst affected regions, where authorities face shortfalls of £3.9bn by 2026-27, while authorities in the North of England confront deficits of £2.3bn.
The landscape of financial distress differs by local authority type, shaped by their responsibilities and population size and composition. The relationship between financial condition and political control is more complex and cannot be reduced to simplistic conclusions.
Local authorities led by all major political parties are in difficult financial positions – despite the willingness of previous governments to make political capital out of specific authorities' fiscal difficulties.
The current Government has opted for a more positive approach and dialogue with the sector.
Fundamentally, the financial challenges facing authorities are the product of the structural issue of unfunded mandates in a highly centralised governance system.
Local authorities have legal responsibilities for service provision without matching resources. The rising costs of delivering adult and children's social care, homelessness and special educational needs and disabilities provision threaten to overwhelm those local authorities responsible. These pressures have been compounded by rising demand, inflation and wage issues. Local authority agency to respond is constrained, affording it limited room for manoeuvre – such as raising taxes or generating alternative sources of income – in highly centralised governance arrangements in which all the big decisions are made in Whitehall.
A rise of ‘deficit belts' are a feature of the system and local authorities have limited scope to address them.
What can be done? There are well-known levers the Government could ‘pull' – some of which, such as council tax reform, commentators have been advocating for decades.
Instead, we suggest a set of principles are necessary to ground and underpin the changes required. It is instructive to compare the European Charter on Local Self Government's ideas on financial resources to the current funding system in England.
Although published more than a decade ago, seldom in the English local government funding debate have such principles been considered as a coherent basis for the kind of thoroughgoing refurbishment of the funding system now required in England – despite their influence internationally.
Article 9 identifies central principles under which local government finance is built: local agency and voice to set the ‘rules of the game'; autonomy to make decisions locally; the ability to raise income unilaterally – without permission needed from government; respect for local priorities; access to national and international capital markets and proportionate redistributive measures to ‘protect' less financially resilient local authorities.
Local government in England is an outlier on many of these basic principles. Consensus is strengthening across England that the funding system is broken and requires bold and radical reform rather than more incremental and short-term tinkering with an already complex and Byzantine system.
Andy Pike is the Henry Daysh professor of regional development studies in the Centre for Urban and Regional Development Studies (CURDS) and Insights North East, Newcastle University. Jack Shaw is an affiliated researcher, Bennett Institute for Public Policy, University of Cambridge and a policy fellow at the University of Manchester's Productivity Institute
