Councils would need to hike council tax by 20% to plug funding gap – LGA

LGA analysis suggests councils will face a £3.4 billion funding gap in the next financial year, with councils already facing unexpected extra costs.

Councils in England would need to increase council tax by a fifth over the next two years to plug a gap in Government funding, analysis suggests (Dominic Lipinski/PA) (PA Archive)

Councils in England would need to increase council tax by a fifth over the next two years to plug a gap in Government funding, analysis suggests.

The shortfall in funding is too big to be tackled by rising council tax alone, warns the Local Government Association (LGA).

LGA analysis suggests councils will face a £3.4 billion funding gap in 2023-24 rising to £4.5 billion in 2024-25.

To plug the gap, it says councils would need to increase council tax by 20% over the next two years – which is “neither sustainable nor desirable given the current cost of living crisis”.

Current rules mean local authorities must trigger a referendum to increase council tax by more than 2.99%, plus a 1% levy for social care.

The Chancellor Jeremy Hunt is understood to be considering hiking that amount in order to ease pressures on social care, with inflation standing at more than 10%.

The LGA warned that many services are facing “severe” cuts, and without guaranteed sufficient funding for next year and beyond, councils will be forced to cut vital services for vulnerable children and older people.

It surveyed chief finance officers in 97 councils in England between August and October, with 50 responses.

The Government undeniably faces a challenge to get the public finances back on a stable footing, but it needs to urgently come up with a long-term plan to fund local services

Councillor James Jamieson, LGA chairman

All respondents reported facing additional costs this year, which were not included in their budget.

Local authorities have been struggling to find an extra £2.4 billion this year to meet “unforeseen extra inflationary cost pressures”, energy prices rises and estimated increases to the National Living Wage since budgets were set in March.

They are also facing pressure from uplifts in contract prices or re-negotiations.

While most councils (88%) are planning to dip into their reserves and cut services to plug funding gaps this year, the LGA said there are not enough reserves to do this in future years.

Using up all reserves would leave councils at “high financial risk” and prompt even greater cuts, it warned.

Ahead of the budget, the LGA urged the Chancellor not to exacerbate councils’ “dire financial outlook” by imposing spending cuts.

Councillor James Jamieson, LGA chairman, said many vital services face an “existential crisis”.

He said: “Inflation is not going to come down overnight; reserves can only be spent once and a local service cannot be cut twice.

“Rising demand for services – and the extra costs to provide them – means that even having the same funding next year as they had this year would leave councils having to make significant cuts to services, such as care for older and disabled people, protecting children, homelessness prevention, leisure centres and bin collections.

“The Government undeniably faces a challenge to get the public finances back on a stable footing, but it needs to urgently come up with a long-term plan to fund local services.

“While council tax is an important funding stream, it has never been the solution to the long-term pressures facing councils, raising different amounts in different parts of the country – unrelated to need – and adding to the financial pressures facing households.”

A Department for Levelling Up, Housing and Communities spokeswoman said: “We understand the pressures councils are under and are working closely with them to ensure vital public services are protected.

“This year, we have made available an additional £3.7 billion to councils to ensure they have the resources to deliver vital services.

“We will announce details on next year’s financial settlement shortly.”