Council finances are becoming unsustainable and whole system overhaul is required, watchdog warns
From bin collections and parks to social care, it’s estimated local authorities in England provide more than 800 services for residents, touching on many different aspects of our lives all the way from childhood to elderly care.
A National Audit Office report found spending on services increased by £12.8bn – from £60bn to £72.8bn – between 2015-16 and 2023-24, a 21% increase in real terms.
Most of this increased spending – £10.3bn – has gone to adult and children’s social care, which represents councils’ biggest spend, increasing as a share of overall spending from 53% to 58% over the period.
Previous central funding cuts and an increasing population mean that spending power per person has largely stagnated, however, and remains 1% lower per person than in 2015/16, the report said.
This is a measure of the funding available to local authorities from central government grants, council tax and business rates. Though grant funding has increased in recent years, it has not yet made up for pre-2020 government cuts.
Complex needs
The population in England has increased by 5% over the period, accounting for some of this increased pressure, but it’s not the only driver.
In many areas, demand has outpaced population growth, as external events and the complexity of people’s needs has shifted over time.
The rapid increase in costs of temporary accommodation, for example, has been driven by the large increases in people facing homelessness because of inflationary pressures and housing shortages.
At the same time, demand for new adult social care plans has increased by 15%.
As life expectancies have increased, the length of time in people’s lives during which they suffer from health problems has also increased.
“We see that in adult social care that people have multiple conditions and need more and more support and often will be appearing as if they’re frailer at an earlier age. So that’s an important trend,” explained Melanie Williams, president of the Association of Directors of Adult Social Services.
“We’re constantly focusing on most urgent things at the expense of not doing the preventative work,” she added.
“When we’re just focusing on getting people home from hospital, we’re not doing that piece of work to enable them not to go there in the first place.”
Budget cliff edge over SEND spending
Meanwhile, demand for education, health and care (EHC) plans, for children with more complex special educational support needs has more than doubled, increasing by 140% to 576,000.
Budgets for special educational needs and disabilities (SEND) have not kept pace, meaning local authority spending has consistently outstripped government funding, leading to substantial deficits in council budgets.
Most authorities with responsibilities for SEND have overspent their budget as they have been allowed to until March 2026 on a temporary override, but they will need to draw on their own reserves to make these payments in a year.
One in three councils will have deficits that they can’t cover when the override ends.
Cuts to services
In the latest figures for 2023/24, the NAO found £3 in every £5 of services spending by English local authorities went towards social care and education, totalling £42.3bn.
This has left little headroom for other services, many of which have experienced real-terms financial cuts over the same time period, with councils forced to identify other services like libraries, parks and the arts to make savings.
But, Williams warned, cultural and environmental services like these can play a vital role in wellbeing and may actually exacerbate demand for social care.
“For us to be able to safeguard both adults and children – so people that need extra support – we do need that wider bit for councils to do,” said Williams, who also serves as corporate director of adult social care for Nottingham County Council.
“It’s no good me just providing care and support if somebody can’t go out and access a park, or go out and access leisure, or go out and have that wider support in the community.”
Commenting on the report, Cllr Tim Oliver, chairman of the County Councils Network, said: “As we have warned, councils have little choice but to spend more and more on the most demand-intensive services, at the expense of everything else – leaving them providing little more than care services.
“It is market-specific cost pressures, mainly in adult social care, children’s services, and special educational needs, that are driving councils’ costs rather than deprivation. Therefore government must recognise and address these pressures in its fair funding review, otherwise it will push many well-run councils to the brink.”
Fighting fires
The NAO report describes a vicious cycle where councils’ limited budgets have resulted in a focus on reactive care addressing the most urgent needs.
More efficient preventative care that could lower demand in the long term has fallen to the wayside.
In one example cited by the NAO, the Public Health Grant, which funds preventative health services, is expected to fall in real terms by £846m (20.1%) between 2015/16 and 2024/25.
Other areas have seen a switch in funding from prevention to late intervention.
Councils’ funding towards homelessness support services increased by £1.57bn between 2015/16 and 2013/24, while money for preventative and other housing services fell by £0.64bn.
Financing overhaul needed
Since 2018, seven councils have issued section 114 notices, which indicate that a council’s planned spending will breach the Local Government Finance Act when the local authority believes it’s become unable to balance its budget.
And 42 local authorities have received over £5bn of support through the Exceptional Financial Support (EFS) framework since its introduction in 2020.
According to a recent Local Government Association survey referenced in the NAO report, up to 44% of councils believe they’ll have to issue a section 114 notice within the next two years should the UK government cease providing exceptional financial support.
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Looking ahead to upcoming funding settlements, and the government’s planned reforms of local government, the NAO warns that short-term measures to address acute funding shortfalls have not addressed the systemic weaknesses in the funding model, with a whole system overhaul required.
Sir Geoffrey Clifton-Brown, chair of the Committee of Public Accounts, said: “Short-term support is a sticking plaster to the underlying pressures facing local authorities. Delays in local audits are further undermining public confidence in local government finances.
“There needs to be a cross-government approach to local government finance reform, which must deliver effective accountability and value for money for taxpayers.”
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A household energy supplier has failed, weeks after it attracted attention from regulators.
Rebel Energy, which has around 80,000 domestic customers and 10,000 others, had been the subject of a provisional order last month related to compliance with rules around renewable energy obligations.
The company’s website said it was “ceasing to trade” but gave no reason.
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Industry watchdog Ofgem said on Tuesday that those affected by Rebel’s demise did not need to take any action and would be “protected”.
Customers, Ofgem said, would soon be appointed a new provider under its supplier of last resort (SoLR) mechanism.
This was deployed widely in 2021 when dozens of energy suppliers collapsed while failing to get to grips with a spike in wholesale energy costs.
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The last supplier to go under was in July 2022.
Ofgem said new rules governing supplier business practices since then had bolstered resilience.
These include minimum capital requirements and the ringfencing of customer credit balances.
The exit from the market by Bedford-based Rebel was announced on the same day that the energy price cap rose again to take account of soaring wholesale costs between December and January.
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Tim Jarvis, director general for markets at Ofgem, said: “Rebel Energy customers do not need to worry, and I want to reassure them that they will not see any disruption to their energy supply, and any credit they may have on their accounts remains protected under Ofgem’s rules.
“We are working quickly to appoint new suppliers for all impacted customers. We’d advise customers not to try to switch supplier in the meantime, and a new supplier will be in touch in the coming weeks with further information.
“We have worked hard to improve the financial resilience of suppliers in recent years, implementing a series of rules to make sure they can weather unexpected shocks. But like any competitive market, some companies will still fail from time to time, and our priority is making sure consumers are protected if that happens.”
Harrods is urging lawyers acting for the largest group of survivors of abuse perpetrated by its former owner to reconsider plans to swallow a significant chunk of claimants’ compensation payouts in fees.
Sky News has learnt that KP Law, which is acting for hundreds of potential clients under the banner Justice for Harrods, is proposing to take up to 25% of compensation awards in exchange for handling their cases.
In many cases, that is likely to mean survivors foregoing sums worth of tens of thousands of pounds to KP Law, which says it is working for hundreds of people who suffered abuse committed by Mohamed al Fayed.
Mohamed al Fayed. File pic: PA
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Under a redress scheme outlined by the London-based department store on Monday, which confirmed earlier reports by Sky News, claimants will be eligible for general damages awards of up to £200,000, depending upon whether they agree to a psychiatric assessment arranged by Harrods.
In addition, other payments could take the maximum award to an individual under the scheme to £385,000.
A document published online names several law firms which have agreed to represent Mr al Fayed’s victims without absorbing any of their compensation payments.
KP Law is not among those firms.
Theoretically, if Justice for Harrods members are awarded compensation in excess of the sums proposed by the company, KP Law could stand to earn many millions of pounds from its share of the payouts.
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‘Many more’ likely abused by Fayed
A Harrods spokesperson told Sky News on Tuesday: “The purpose of the Harrods Redress Scheme is to offer financial and psychological support to those who choose to enter the scheme, rather than as a route to criminal justice.
“With a survivor-first approach, it has been designed by personal injury experts with the input of several legal firms currently representing survivors.
“Although Harrods tabled the scheme, control of the claim is in the hands of the survivors who can determine at any point to continue, challenge, opt out or seek alternative routes such as mediation or litigation.
“Our hope is that everyone receives 100% of the compensation awarded to them but we understand there is one exception among these law firms currently representing survivors who is proposing to take up to 25% of survivors’ compensation.
“We hope they will reconsider given we have already committed to paying reasonable legal costs.”
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Further claims against al Fayed
Responding to the publication of the scheme on Monday, KP Law criticised it as inadequate, saying it “does not go far enough to deliver the justice and accountability demanded by our clients”.
“This is not solely a question of compensation but about justice and exposing the systematic abuse and the many people who helped to operate it for the benefit of Mohamed al Fayed and others.”
Seeking to rebut the questions raised by Harrods about its fee structure, KP Law told Sky News: “KP Law is committed to supporting our clients through the litigation process to obtain justice first and foremost as well as recovering the maximum possible damages for them.
“This will cover all potential outcomes for the case.
“Despite the Harrods scheme seeking to narrow the potential issues, we believe that there are numerous potential defendants in a number of jurisdictions that are liable for what our clients went through, and we are committed to securing justice for our client group.
“KP Law is confident that it will recover more for its clients than what could be achieved through the redress scheme established by Harrods, which in our view is inadequate and does not go far enough to compensate victims of Mr al Fayed.”
The verbal battle between Harrods and KP Law underlines the fact that the battle for compensation and wider justice for survivors of Mr al Fayed remains far from complete.
The billionaire, who died in 2023, is thought to have sexually abused hundreds of women during a 25-year reign of terror at Harrods.
He also owned Fulham Football Club and Paris’s Ritz Hotel.
Harrods is now owned by a Qatari sovereign wealth fund controlled by the Gulf state’s ruling family.
The redress scheme commissioned by the department store is being coordinated by MPL Legal, an Essex-based law firm.
Last October, lawyers acting for victims of Mr al Fayed said they had received more than 420 enquiries about potential claims, although it is unclear how many more have come forward in the six months since.
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