Fewer than half of councils serving some of England’s poorest communities are confident they will meet their budgets this year, a survey has found.
In a dire warning of the perilous state of local government finances, 47 authorities in the North, the Midlands and on the south coast said they will have to make savings totalling £700 million on spending plans set just four months ago due to inflationary pressures.
As well as 55% of councils admitting they have doubts over covering costs in 2023/24, 15% said they had less than an even chance of doing so.
Furthermore, 60% of councils said they will be forced to take cost-cutting measures to reduce capital budgets set aside for key regeneration and infrastructure projects.
The results emerged from a survey by the Special Interest Group of Municipal Authorities (Sigoma) of its member councils.
With a legal requirement to balance the books, councils will be forced to either further deplete their available reserves or make cuts to planned spending, the survey showed.
The majority of councils said this created a risk that the standard will drop across services such as adult and children’s social care.
Responding to the findings, Labour MP for Barnsley Central Dan Jarvis said annual Government funding settlements compounded councils’ resource problems.
He added: “After 13 long years of cuts, council finances are in a perilous position.
“Current inflationary pressures and a funding cliff-edge mean that many councils may be forced to make further cuts.
“This is the opposite of levelling up and will only exacerbate the cost-of-living crisis for millions. We need a plan to transform our communities, not just tinker around the edges.”
On average, Government funding fell in real term since 2015/16 across all types of councils, with reductions slowing since 2019-20.
Funding began to increase in 2020-21 but councils’ growing reliance on council tax and other revenue to cover costs means there is significant variation in the overall spending power of individual local authorities.
Councils in more deprived areas, which have lower council tax bases generating less revenue, stress their higher levels of Government funding per person based on needs is not enough to address the inequality in resources available.
Sigoma is campaigning for a new funding settlement for local authorities which enables long-term planning.
Sigoma chairman Sir Stephen Houghton, who is Labour leader of Barnsley council, said single-year settlements create unnecessary uncertainty.
He added: “In our manifesto released last month, we laid out how multi-year funding settlements would go some way to helping reduce this uncertainty and give councils confidence and the funding capabilities to address inflationary pressures by taking long-term investment decisions that are best for supporting their communities.”
The survey found 45% of member councils had delayed capital projects and 35% said they had axed schemes they could no longer afford to finance this year.
Sir Stephen added: “Councils are important drivers of local economic growth with big capital projects a vital part of the levelling up agenda.
“Inflationary pressures are significantly impacting construction costs, and many of our members are having to scale back projects or cancel them outright due to funding uncertainty.
“Instead of spreading relatively small pots of funding across the whole country, as has been the case with levelling up funding, the Government needs to provide targeted funding to ensure these vital projects can go ahead as originally planned, as well as deliver wider reforms to the process, including reducing the number of bidding contests and focusing on supporting the areas that are most in need of regeneration funding over the long term.”
A Government spokesperson said: “Councils in England will benefit from almost £60 billion to deliver vital frontline services with an average funding increase of 9.4% over this financial year.
“The final settlement for local government ensures the most relatively deprived areas of England receive 17% more funding per household than the least deprived.
“Levelling up is a long-term programme of reform that is breathing life into overlooked communities, whether it is record investment in town centres and high streets or devolving more money and power to the regions.”
Recent research by LG Improve based on the accounts of 109 councils showed cash reserves available to councils as a percentage of net revenue expenditure – a key indicator of financial resilience – fell by an average of 11% in 2022/23 compared to the previous year.
Unitary councils and metropolitan boroughs saw annual average reductions in reserves of between 13% and 18%.
