2025 State of Local Government Finance in England

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Each year, the LGIU’s Local Democracy Research Centre surveys council leaders, chief executives, cabinet members for finance, and senior finance officers to find out how local authorities are managing and responding to an increasingly challenging fiscal environment. This year, our research illustrates how local government reorganisation and rises in National Insurance Contributions represent additional challenges for a sector that is already in a state of crisis management. Against a backdrop of surging service demand and councils pulling all the levers available to them, a high proportion of authorities believe it is likely that they will issue section 114 notices in the short and medium term. This report outlines these findings, together with the appetite for change that exists in the sector and the steps that the UK government must take to ameliorate the crisis facing councils’ finances.

This report, the LGIU’s 12th annual State of Local Government Finance in England survey, illustrates a sector that remains in crisis. Councils continue to struggle under inflation, workforce shortages, high debt burdens, the local authority audit backlog, and ring-fencing constraints; however, local government reorganisation and rises in National Insurance Contributions represent new, additional pressures on council finances.

Senior local government figures have expressed serious concerns about reorganisation. Although an increased proportion believe that the UK government has been more understanding, clear, and transparent in policy decisions than in previous years, only 1 in 10 believe they have been adequately involved in reorganisation, while fewer than 1 in 5 feel there has been sufficient clarity surrounding the government’s plans. Moreover, just 1 in 5 think the proposed timescales for reorganisation are deliverable, while fewer than 1 in 4 believe that it will improve council finances. As the director of finance at a county council told us:

“Local government reorganisation will be a distraction from needing to balance the books for all councils … It is making everything much more uncertain and challenging.”

Of the 150 councils that the LGIU surveyed, 6% said it was likely that they would issue a section 114 notice in the next financial year, with 35% indicating a likelihood of doing so in the next five years. Extrapolating these findings to the 317 councils in England, this suggests that 19 councils could fail to pass a balanced budget by March 2026, rising to 111 by 2030.
Surging service demand remains the greatest threat to the sustainability of local government finance, with over 90% of councils identifying it as a major issue. The most critical areas of concern include:

• Temporary accommodation: as councils face unprecedented demand for supported housing.
• Children’s services: where rising caseloads and intervention costs are stretching budgets, particularly in relation to SEND provisioning.
• Adult social care: which remains a persistent financial challenge due to demographic pressures and rising care costs.

To cope, councils will take an array of income-raising measures in the next financial year, including:

• increasing council tax (94%);
• increasing fees and charges (88%);
• selling or transferring public assets (60%);
• increasing commercial activity (32%);
• and increasing borrowing (22%).

Nearly two-thirds of councils will reduce spending on services (63%), although many will make savings through efficiencies arising from the restructuring of services (47%). Alarmingly, most councils will draw from their reserves this year (56%) – the second successive year for nearly half of our survey (49%). Nevertheless, these measures will still fail to drastically improve the situation facing councils, and more radical reform is needed. The chief executive of a metropolitan borough council explained:

“The council’s financial sustainability relies upon a fundamental change in local government funding … Despite efforts from the council, it is highly likely that the council will find its position unsustainable”

There is very strong support within the sector for key reforms. A staggering 92% of local government officials believe that multi-year financial settlements will improve council finances, providing much-needed certainty for financial planning. Additionally, 77% support council tax reform, and around 75% favour a broader fiscal toolkit. While many officials acknowledge that recent government measures have helped ease financial pressures slightly, overall satisfaction remains low – hovering at around 25% across an array of different measures of the central-local relationship.

As the sector navigates a period of nearly unprecedented change, many fear that current efforts will not suffice to prevent widespread financial collapse. One long-serving council leader summed up the mood:

“The future is especially opaque right now and significant challenges are gathering on the horizon. For the first time, I’m genuinely worried about the medium-term prospect of a section 114 notice.”

Without a more transparent approach to reorganisation and a greater alignment between the government’s efforts towards devolution, financial reform, and public service reform, councils will find themselves in an increasingly untenable position – one with severe consequences for communities across the country.