Local government will have £25bn funding gap, report warns

Local government will face a £25bn funding gap in the coming years as reforms mean grants are being cut to “almost zero”, a new report has warned.

A few ring-fenced grants will account for less than a tenth of local authority expenditure by 2025, said the Trades Union Congress (TUC) and New Economics Foundation (NEF).

Councils will keep a higher proportion of business rates, but the report said there are major problems with the funding reforms, including greater exposure to the economic harm from a no-deal Brexit.

The report said around half of local-government funding came from central government in 2010, but by 2024-25 this will have been cut to zero, apart from a small amount of ring-fenced funding.

The funding gap will continue to increase, especially as demand for services will grow as people live longer.

The TUC and NEF said poorer areas are at greater risk of bigger funding shortfalls.

They also warned that a no-deal Brexit could lead to an even bigger funding gap, as business-rates revenue could be hit.

The TUC general secretary, Frances O’Grady, said: “Any government that cared about local services would rule out a no-deal Brexit.

“These funding reforms leave councils far more vulnerable to the economic damage that would be caused by crashing out of the EU without a deal, and that will mean bigger funding gaps for services that families rely on like social care, youth services and children’s centres.”

The report was published on the opening day of the TUC congress in Brighton.

Unison’s head of local government, Jon Richards, said: “This report lays bare the jaw-dropping scale of austerity cuts inflicted on councils in the past decade.

“The funding announced in the chancellor’s spending review goes nowhere near to solving this. Social care needs billions and many councils are scarcely able to maintain even the minimum level of services the law requires.”

A Local Government Association spokesperson said: “This report highlights the significant funding reductions and demand pressures councils have faced in the past decade.

“This week’s spending round delivered a £3.5bn funding package for councils – the biggest year-on-year real-terms increase in spending power for local government in a decade – and will help them meet rising cost and demand pressures in 2020-21.

“This is a one-year settlement so it remains crucial that councils are able to plan ahead more than 12 months at a time.”

A Ministry of Housing, Communities and Local Government spokesperson said: “This year councils in England have £3.5bn more in revenue compared to last year, this is the biggest rise in spending power for a decade.

“We are also rebalancing local authority spending in favour of the poorest areas by boosting their spending power by 22 per cent more than the richest areas.

“Ultimately councils are responsible for managing their own resources and we are working with local government to develop a funding system for the future.”

Shadow communities and local government secretary Andrew Gwynne said: “This report confirms what we already knew – after a decade of cuts, our council services are at breaking point.

“It throws the lack of real solutions to this crisis in last week’s spending review into sharp relief.

“People deserve so much better. They deserve a Labour government that will provide local councils with the funding they need to deliver the services that communities rely on.”

Press Association