Update: We have updated our Manifesto for Counties to reflect the new government taking office and our councils’ latest priorities.

Local
Government
Finance

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Overview

County Council Network manifesto proposals for local government finance this parliament outline that the new government must use the upcoming Spending Review and Budget to set out a four-year sustainable funding settlement for councils, one capable of meeting the growing demand-led pressures facing councils. Crucially, it must put in place a priority set of reforms to reduce costs and improve outcomes within the next 18 months. Alongside this, in the medium-term, it should progress reforms to the system of local government finance, including engaging the sector on a review of relative needs and resources, while reforming business rates, council tax and other funding streams.      

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£54bn
the funding shortfall facing local authorities in England over the next five years
£20bn
the total funding gap facing county and CCN unitary councils this parliament
£1bn
in savings that county authorities delivered in 2023/24 to balance their budgets
68%
the average percentage of a county authority budget (excluding education) dedicated to providing care services
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Our priorities

Our Vision

It is undoubtedly the case that the funding of councils is more  firmly in the public consciousness than at any point in recent history.  However, while a recent bout of Section 114 notices may have bought the issue to wider public attention, the root causes of the challenges have been over a decade in the making.  

It is in this context the new government begins its first Spending Review and prepares to set out the Budget in October. The government has inherited a very precarious position when it comes to local government funding, and with the Treasury suggesting there is a larger than expected funding black hole in the public finances, it is clear money will be tight. To overcome this, the government has declared that it will be a missions-led administration and has made a commitment to empowered and sustainable local authorities. Alongside this, the government have set out that the Spending Review will take a reform-driven and mission-led approach to public services.  

Our proposals in our Manifesto for Counties aligns with these missions and aims of the Spending Review, while recognising and clearly outlining the severity of the financial challenges facing councils. Our vision for local government finance this parliament is built on three core principle of: Stability through financial certainty in the short term; Investment to meet the severe financial pressures in the short-term and underlying gap in the medium term; Reform to reduce costs and improve outcomes, providing long-term sustainability and the foundations for growth through greater devolution to councils.

Priority 1

Financial Pressures

It is welcome that the new government have committed to sustainable local authorities, supported by longer-term financial settlements. However, these will only be sufficient if accompanied by a substantial injection of new resources.  

The recent findings of our financial  outlook for councils with PwC and Pixel shows that the pressures facing  local government in England will not ease up over the coming period - indeed  they will only intensify. Based on the current trajectory of spending, analysis conducted by PwC shows that total spending need on council services in England could increase by £26.3bn by the end of the parliament, compared to 2022/23 - a 46.7% increase.

As a result of these rising costs and demands, local authorities in England face a cumulative £54.2bn funding shortfall over the next five-years. County and CCN unitary authorities represent 36% of the total, with a £20.3bn funding gap. While our analysis showed that yearly rises in council tax of 3% could reduce this national cumulative deficit to £38bn over the next five years, the County Councils Network have been clear that the government cannot rely on council tax alone to meet the gap, and local authorities would still be left to find billions each year in undeliverable service reductions to balance their budgets.

Even with yearly council tax increases, the network has set out that councils would have no choice but to continue to divert even more funding to fund high-demand care services. With 68% of the average County Councils Network member budget already consumed by care services alone, under current projections, this leave local authorities providing little more than care services in just a matter of years.  

However,  with many councils already providing close to statutory minimum levels in many service areas, this will still not be enough – threatening their ability to remain solvent unless their statutory obligations change. A recent County Councils Network survey revealed some 16 could be at risk of declaring bankruptcy by 2026/27, with a further six the year after, if government does not provide extra funding and councils statutory responsibilities remain the same.

As our proposals below set out, this unpalatable trade-off between reducing statutory duties or insolvency must be avoided through the government providing a substantive injection of new resources as part of long-term settlement for councils. Failure to do so would mean there will be no alternative to an honest discussion with residents on what statutory duties councils can reasonably be expected to deliver moving  forward.    

 

Priority 2

Service Reform

The County Councils Network recognise that the government are operating within a tight fiscal envelope, and while additional funding is urgently required, it must go hand-in-hand with reform.  

Further organisational and service transformation through the adoption of new technologies and digitalisation, alongside a renewed focus on  productivity, can help councils bare down on future costs. However, after a decade of cost-cutting, a narrow focus on efficiency savings will not resolve the underlying financial challenges facing councils. Moreover, reducing  non-statutory services further is neither desirable nor will it close the scale of the funding gap facing councils.

Reform, therefore, must go deeper and faster. This must fundamentally tackle the drivers of surging demand, while seeking to address market failures that are creating unsustainable costs for councils in delivering adult social care, children’s services and home to school transport. By 2030, cost increases in these three services alone account for 83% of the total increase in spending need in England. For County Councils Network member councils this is even higher, at 89%.

Within our recent financial outlook report, PwC produced an alternative spending need forecast, which assumes some policy intervention and national reforms to resolve the surging costs and demands in adult social care, children’s services and home to school transport. If reforms were enacted, this could reduce the trajectory of spending need from 2027/28 onwards in these services, resulting in the national cumulative gap falling further after council tax rises to £24.2bn over the five-year period.  

However, this reduction won’t occur unless the government introduce and drive through reforms to address spiralling costs in children’s services, adult social care, and in special educational needs. It is also urgent to have an impact on councils’ spending: with the government needing to outline and deliver reforms within in the next 18 months.

Our Manifesto for Counties sets out the bold and necessary reforms across adult social care, children’s services, SEND and home to school that are required: ones that the network believe could help make the ‘Reform’ forecast contained in our financial outlook a reality, reducing the trajectory of spending need from 2027/28 onwards and with it the anticipated funding shortfall.

 

Priority 3

Funding reform

The structure of the local government finance settlement is no longer fit for purpose. The underlying formulas used to determine council funding levels have not been updated for over a decade, while the introduction of business rates retention and New Homes Bonus have unbalanced the local government funding system.    

These structural deficiencies adversely impact all types of councils. However, counties face a number of unique challenges which amplify  these issues. Our ageing demographics and large rural geographies create additional costs in service delivery, while issues of rural poverty, deprivation and poor social mobility are overlooked and under recognised in funding settlements. As a result of outdated funding formulae, counties have been historically the lowest funded councils, receiving £410 core funding per head this financial year, compared to an England average of £571. This historic underfunding, and an over reliance on council tax rises to fund services, also means the average Band D council tax rate in counties is 15% higher than the national average.

County councils have also benefited least from the introduction of business rates retention and New Homes Bonus due to the disproportionate tier share for district councils, with many councils left worse off. The County Councils Network has raised concerns over whether business rates are a fair way to fund demand-led services, with little correlation between income, expenditure, and service need. Consultations on the future of these funding streams were undertaken by the previous government. Most importantly, considerable positive progress was made under previous administrations on introducing a ‘fair funding review’. The County Councils Network broadly supported the direction of travel of these reforms, but ultimately no changes were introduced.

Reform to the distribution of funding is necessary and inevitable. But it will be complex and difficult to achieve at a time when there are limited resources. The government will need to balance the need to reform, whilst ensuring it does not further undermine the financial stability of councils. That’s why our Spending Review submission outlined the need to provide certainty in the short-term, ensuring in the first year of office there are no changes to the approach in the distribution of grants, allowing time for a full engagement and consultation on any proposals for reform.

However, over the medium-term, our proposals below set out that the new government should seek to undertake a review of relative needs and resources, building on proposals put forward in the previous government's 2019 consultation. Alongside this, the government should seek to reform both business rates and New Homes Bonus, ensuring at a minimum that business rates growth is reset, while county authorities receive a more appropriate share of income.

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our proposals

Local Government Finance

The County Councils Network’s Manifesto for Counties is built on an agenda for reform. Detailed proposals contained within each policy section demonstrate how the sector can work with the new government to implement practical reforms this parliament to drive down costs and improve outcomes, particularly in adult social care, children’s services, SEND and home to school transport. But to achieve this, council finances must be both sustainable, and reformed, through the implementation of our proposals for local government finance.

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Multi-Year Sustainable Funding
Delivering a long-term sustainable funding settlement at the Spending Review
  • Ahead of undertaking a full Spending Review, the new government should set out its approach to the local government funding settlement for 2025/26 as early as possible. This must, at the very least, retain all existing funding streams, whilst providing an emergency injection of resources to meet increased spending needs.
  • Commit at the Spending Review to a minimum three-year settlement for local government. An evidence-based assessment of council funding needs should be undertaken to provide long-term sustainable resources, taking into the account the findings of the Independent Review of Local Government Spending Need conducted by PwC for the County Councils Network.
  • In line with the Manifesto for Counties proposals for Children’s Services and SEND, the incoming government must provide immediate clarity on how it plans to manage councils' high-needs deficits in 2026 when the statutory override is scheduled to end. Alongside this, it must put in place a comprehensive reform and deficit reduction strategy to make the special educational needs and disabilities system more sustainable.
  • In line with the Manifesto for Counties proposals for devolution and local growth, the government should remove competitive bidding processes, seeking wherever possible to streamline and consolidate both revenue and capital grants into single, long-term and flexible funding streams, distributed based on need.
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Council tax and business rates
Reviewing council tax freedoms and flexibilities, while reforming incentive-based funding
  • The government should seek to remove the referendum principle on council tax rate setting, recognising the role of democratically elected councils in setting their budgets locally.  
  • A consultation should be undertaken on providing councils with greater freedoms and flexibilities over council tax locally, including areas such as the single person discount and ability to propose additional council tax bands.
  • The government should consult the sector on the future of business rate retention as part of wider fiscal devolution proposals and reforms to business rates. This must recognise concerns over the sustainability and suitability of the tax in the face of pressure from business groups to reduce the tax, given the nature of high-street and online retailing; the correlation between business rates income, growth expenditure, and service need; and the tier share between county and district councils.
  • Ahead of any fundamental reform to business rates retention, the government should seek to reset business rate growth in its second year in office, distributing retained growth according to need.
  • New Homes Bonus should either be reformed or abolished. If abolished the funding should be redistributed based on need, with any reform focused on reviewing the role of incentives so they better reward upper-tier councils' vital role in providing infrastructure that enables sustainable housing development.
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Fair Funding
Reviewing relative need and resources, and reforming local government finance
  • The government should provide certainty in the short-term, ensuring in the first year of office there are no changes to the approach in the distribution of grants, allowing time for a full consultation on any proposals for reform.
  • Following confirmation of the local government settlement 2024/25, the government should begin an extensive engagement exercise with the sector to review relative needs and resources. This should build on the work previously developed as part of the fair funding review and the proposals contained in the 2019 consultation, specifically proposals for the foundation formula, area cost adjustments and independent work undertaken to develop service specific funding formulae.
  • As part of any review of relative needs and resources, the government should ensure that when approaching resources (i.e. council tax), a notional rather than actual council tax rate must be used, with only a partial council tax equalisation. This would recognise that councils with high council tax bases have seen their reliance on this funding stream grow due to central government policy decisions and historically lower funding.
  • In line with the Manifesto for Counties proposals for Adult Services and Health, the new government should seek to consult on, and implement, an updated Adult Social Care Relative Needs Formula, building on and updating independent proposals put forward by the Personal Social Services Research Unit at the University of Kent.
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Improvement & efficiency
Supporting sector-led improvement, while reviewing the role and responsibilities of the Office for Local Government
  • Sector-led improvement has proved to be an effective mechanism for supporting councils. An incoming government should continue to focus on this as the primary mechanism for improving services and ensuring effective governance.  
  • The government should provide a clear statement of policy to the sector on its future plans for the Office for Local Government (OFLOG). County Council Network members continue to have concerns over the remit and purpose of OFLOG, and in particular the severe limitations of the data comparison tool which is open to misinterpretation on council performance.
  • If the government intends to retain OFLOG, it should seek to make it independent of the department. A review should be undertaken of its purpose and remit, with a view to focusing activity on supporting improvement and the sharing of best practice; achieving greater alignment between sector-led improvement activity and the work of regulators such as CQC and Ofsted; and avoiding the recreation of an inspection body similar to the Audit Commission.
  • The government should remove the recent requirement for councils to submit annual productivity plans. Councils already have pre-existing medium term financial strategies focused on this which are scrutinised locally, without the need to submit separate burdensome and time-consuming plans to Whitehall.
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Independent Review of Local Government Spending Need& Funding 2022-30

In 2019, the County Councils Network published the  ground-breaking study Independent Review of Local Government Spending Need  & Funding. Widely regarded as one the most comprehensive and detailed  analysis of councils’ funding needs, it fundamentally changed the narrative  on the challenges facing local government finance.

As a new government takes office and is faced with competing public sector spending pressures, updating this evidence base has never been  more important to inform their first Spending Review.

That’s why the County Councils Network commissioned PwC to update their analysis for the period 2022 to 2030, providing new and improved estimates on the funding needs of different council types for the next  parliament.

Unlike other modelling of this nature, PwC’s modelling does not simply project forward current spending patterns, but looks in detail at the  real spending needs of councils, based on demand, unavoidable costs and  councils providing a more ‘consistent level of service’.

A full report will be published in Summer 2024, but by clicking left you can explore the key interim findings.

Key Finding 1

Financial Sustainability

  • Spending need for  local authorities in England will increase by 35% (£15.7bn) over the period  from 2015/16 to 2024/25.  CCN authorities could  face a 33% (£5.9bn) increase in spending need over this period.
  • Spending on adult  social care accounted for 32% of total spending in the baseline year. For CCN  authorities, their spending need made up 38% of the total in the baseline  year and is set to grow to 43% (£2.9bn) over a 10 year period.
  • Spending on adult  social care accounted for 32% of total spending in the baseline year. For CCN  authorities, their spending need made up 38% of the total in the baseline  year and is set to grow to 43% (£2.9bn) over a 10 year period.
  • The five largest spending areas in 2015/16 accounted for more than 75% of spending.
Key Finding 3

Resources

  • Between 2015/16 and  2018/19, our analysis suggests that local government faced a cumulative  funding gap of £8.4bn.
  • CCN authorities would  have faced an underlying funding gap of £1bn in the baseline year if all  local authorities provided a more consistent level and quality of service.
  • Our analysis shows  that for the current financial year (2019/20), local authorities could face a  funding gap of £4.8bn, rising to £9.3bn by 2022/23 if all local authorities  provide a more consistent level and quality of service. Overall, our analysis  of the period between 2019/20 to 2024/25 estimates that councils could face a  cumulative funding gap of £51.8bn if they deliver a consistent level of  service.
  • CCN authorities would face a £5bn funding gap in2024/25 to meet rising demand and costs based on provision of a more consistent level of service. This represents around 40% of the overall funding gap for all local authorities in 2024/25. The cumulative funding gap over the six year period from 2019/20 amounts to £21.5bn.
Key Finding 2

Resources

  • The share of funding  from Business Rates and grant funding and Council Tax for each local  authority tier in the baseline year (2015/16). Income from Council Tax  accounts for the majority of funding for county unitary authorities (around  54%) and county councils (around 58%) whereas Business Rates and grant  funding form the main funding stream for the other tiers of local authority.
  • Council Tax income  accounted for 45% of total funding in 2015/16 and is projected to increase to  56% of total funding in 2024/25.
  • The share of total  funding from Business Rates and grant funding is expected to fall from 55% to  44%.
  • The Business Rates and grant funding are expected to decrease by 11% for both non-CCN unitary authorities and metropolitan boroughs and by 10% for London boroughs over the same period.
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Our Evidence Base

Research Reports & Key Findings
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CCN Budget Analysis: Autumn 2023

This report was the outcome of a survey of 41 county and unitary councils in autumn 2023, which found that those councils were facing historically high overspends leading into the 2024/25 financial year and beyond.

Read more

Key findings:

  • In 2023/24 county authorities were set to overspend their budgets by a combined £639m - £16m per council - due to inflationary costs and rising demand.
  • Children’s services accounted for almost half (45%) of this figure, with adult social care accounting for 25% and education, highways and home to school transport accounting for 22%.
  • In 2023/24 the funding gap facing county authorities grew to £1.6bn, with a further shortfall of £1.1bn in 2024/25 and £1.3bn in 2025/26, meaning a total funding shortfall of £4bn between 2023-2026. Over the course of this period, planned savings and service reductions would only eradicate half of this deficit.
Download
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Workplace of the Future: Future of Local Government

This research by CCN and PwC explored the workforce challenges facing local government, putting forward a range of recommendations. It featured a survey of over 6,000 local government employees on their experience.

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Key findings:

  • Since 2012, councils in England’s 37 county and rural areas have witnessed the largest workforce decline amongst local authority types, with 32.5% (215,000) fewer employees.
  • The survey reveals that one in four (26%) of respondents plan on working in local government for less than four years, with only half (46%) believing they would work in local government for over 10 years.
  • Pay was the biggest factor for the retention of employees, but 18-34 year olds ranked career pathways as the second highest, whereas over 35s ranked flexible working as the second highest and secondment opportunities third highest.
Download
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Coming soon

Independent Review of Local Government Spending Need

Ahead of the next Spending Review, this forthcoming report with PwC will provide a detailed analysis of the funding outlook for councils over the period of the next parliament.

Read more

Areas of focus:

  • Analyse the financial pressures experienced by councils during the height of the inflationary spike in 2022 and 2023.
  • Projecting forward council spending need up to 2029/30.
  • Outlining the funding required for councils to provide core statutory services over the coming period.
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Our priorities

The Outlook for Council Finances
this Parliament

With preparations now underway for the Budget and Spending Review, the County Councils Network new report published in early October 2024 seeks to provide government with a detailed outlook for council finances this parliament.

Building on previous analysis conducted in 2019, part one of the report presents updated spending need forecasts for local government in England by PricewaterhouseCoopers LLP (PwC). This analysis was conducted across seven specific areas of council expenditure, alongside other services, incorporating a detailed and robust forecasting methodology to estimate the funding requirements of the sector.

Part two of the report set out funding projections by Pixel Financial Management. This incorporates funding both within councils Core Spending Power, and elements outside of it, projecting forward anticipated funding based on maintaining all current funding for the sector and the potential growth in locally retained resources.

CCN and Pixel Financial Management have bought together the spending need and funding projections to forecast the financial outlook for councils for the period 2025/26 to 2029/30.

Click left to explore the findings.

Key finding 1

Baseline Forecast

Our baseline forecast for councils demonstrates the financial outlook before local decisions take place on council tax increases and national policy decisions on funding levels.

  • Based on the continuation of cost pressures and current trajectory of spending, analysis conducted by PwC shows that total spending need on council services in England could increase by £26.3bn by the end of the parliament, compared to 2022/23 - a 46.7% increase.
  • CCN authorities could face an £11bn increase in spending need over the same period, representing growth of 49.8%. By 2030, CCN authorities account for 40% of all spending need.
  • The baseline financial outlook shows that next year local authorities in England have an annual funding gap of £4.9bn, rising to £17.3bn by 2029/30.
  • For CCN authorities, the gap in the next financial year is £1.6bn, growing annually to reach £6.7bn over the same period. As a result of continuing surging pressures in adults, children’s and home to school transport, CCN authorities share of the funding gap grows from from 33% in 2025/26 to 39% in 2029/30.
  • Cumulatively the forecast shows that all local authorities combined have a £54bn funding shortfall over the five year period. CCN authorities represent 36% of the total, with a £20.3bn funding gap.

key finding 2

Council Tax & Business Rates forecast

Our Council tax increase forecast shows the impact of a 3% rise annually before government sets out any changes to referendum principles and the continuation of the social care precept.

  • The financial outlook including a 3% council tax rise annually of shows local authorities in England have an annual funding gap of £3.9bn in 2025/26, rising to £11.6bn by 2029/30. Cumulatively the forecast shows that by all councils increasing council tax by 3% annually throughout the forecast period, the total combined shortfall reduces by less a third (30%) to £37.6bn over the five year period.
  • For CCN authorities, the gap in the next financial year is £1.1bn growing annually to reach £4bn over the same period. With council tax overwhelmingly the most important source of income for CCN member councils collectively, this reduces their cumulative gap by 40% to to £12.3bn.

By incorporating estimates on retained rates above baseline in our all retained business rates forecast, the analysis assumes these resources are used to fund day-to-day expenditure, which for upper-tier councils will naturally result in very limited ability to invest in growth enabling services.

  • The financial outlook assuming councils use all retained business rates above baseline to fund core services shows local authorities in England have a combined funding gap of £2.4bn in 2025/26, rising to £9.5bn by 2029/30.
  • Cumulatively the forecast shows the total combined shortfall reduces by a further 16% compared to the baseline forecast. The cumulative gap is £28.7bn over the five year period if councils were expected to use all retained business rates above baseline to fund core services.

key finding 3

Reform forecast

Within our Reform forecast, we assume reforms are enacted to reduce the trajectory of spending need from 2027/28 onwards in adult social care, children’s service and SEND home to school transport. If reforms were enacted, and spending trends returned to levels experienced before 2020, the necessity to use retained business rates above baseline to fund expenditure in these services would be reduced. Therefore we exclude retained rates above baseline from this forecast for upper-tier councils.

  • The alternative forecasts, which assumes policy interventions are made to reform service provision to address recent high costs and demands that have been causing recent pressures, suggests total spending need could be £5.9bn lower by 2030. Policy intervention could have the largest impact on CCN member councils, with spending need £2.6bn lower by the end of the forecast period.
  • The financial outlook based on reforms being enacted shows local authorities in England have an annual funding gap of £3.6bn in 2025/26, rising to £5bn in 2026/27 but broadly remaining stable up to 2029/30. The cumulative gap is £24.2bn over the five year period if reforms were enacted, councils increased council tax by 3% per annum over entire forecast period and districts still used retained rates to offset their funding gap.
  • For CCN authorities, the gap in the next financial year is £1.1m growing to £1.7bn in 2026/27. CCN councils would benefit most from national reforms that help reduce spending need over time: resulting in the funding gap stabilising at between £1.6-£1.5bn for the remainder of the forecast.
Download the analysis
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