Think tank warns of significant risk more councils could be pushed to financial "breaking point"

A report that highlighted the "almost complete silence" on council funding from the main political parties ahead of the general election has warned that cuts to some council services are "highly likely".

The Institute for Fiscal Studies's (IFS) report, titled 'What is the outlook for English councils' funding', also warned of a significant risk that more councils could be pushed to financial "breaking point".

In light of the lack of mention of local government funding in the main parties' manifestos for the 2024 general election, the IFS mapped out a number of different potential scenarios for council finances.

It concluded that, given the current fiscal environment and overall spending plans implicit in the main parties' manifestos, "cuts to some council services are highly likely unless spending pressures abate – even with big increases in council tax, and particularly in poorer parts of the country".

"There is also a real risk of significantly more councils being pushed to financial breaking point, joining the likes of Birmingham, Thurrock and Woking," it added.

The report highlighted three key points.

Firstly, it found that the increases in council tax that are allowed will likely matter more for councils' overall funding outlook than changes in grants.

"This reflects that council tax makes up 57% of core spending power, compared with 15% for grants from central government," the report said.

Secondly, it said that the likelihood that councils will become increasingly reliant on council tax in the coming parliament "means that unless grant funding were redistributed between councils, those in more deprived areas would likely fare financially worse than those in more affluent areas".

It added: "This is because those in more deprived areas have smaller tax bases and instead rely on central government grants for more of their overall funding."

Thirdly, the report concluded that whether changes in funding are sufficient to meet changes in councils' spending needs will depend "critically" on whether recent demand and above-inflation cost pressures slow down.

If they do not, even 5% increases in council tax will not be sufficient, despite inflation being expected to average just under 2% a year over the next five years, the report warned.

Responding to the report, Cllr Kevin Bentley, Senior Vice Chairman of the Local Government Association, said: "A funding gap of more than £6 billion facing local services over the next two years - fuelled by rising cost and demand pressures - means a chasm will continue to grow between what people and their communities need and want from their councils and what councils can deliver.

"The LGA is calling on all political parties to commit to a significant and sustained increase in funding for councils in the next Spending Review, alongside multi-year funding settlements and plans to reform the local government finance system."

Adam Carey