How have changes affected different local authorities?
All local authorities have had to find ways to do more with less in the face of cuts to their spending power. But the size of the cut since 2010 has varied across the country, with the largest cuts falling on the most deprived local authorities
Grant funding was cut by a uniform percentage across all local authorities in the first half of the 2010s, but because grant funding made up a greater proportion of more deprived local authorities’ funding compared to less deprived authorities, this approach meant that their spending power fell by more.
As a result, spending power fell by 33.3% in real terms between 2010/11 and 2019/20 in the most deprived fifth of upper- and single-tier local authorities, compared to 15.2% in the least deprived fifth. By 2025/26, funding was just 0.7% lower than 2010/11 levels in real terms in the least deprived fifth of authorities, while the most deprived fifth still had spending power that was 17.3% lower in real terms.
The local government finance settlement in December 2025 (the first which used updated funding formulae) provided local authorities’ funding allocations until 2028/29. That showed that spending will rise fastest in the most deprived 20% of upper- and single-tier authorities between 2025/26 and 2028/29 (15.1% in real terms) and by the least in the least deprived quintile (3.1%).
How does local government spend money?
Local authorities are legally responsible for providing a wide range of services. There is no definitive list for the number of statutory responsibilities that local authorities have to meet, but one government review from 2011 estimated that there were more than 1,200.
While local authorities are legally required to deliver many services, in practice they have some flexibility about the level of provision. For example, local authorities closed 33% of library sites between 2009/10 and 2019/20 while still arguably meeting their statutory duty “to provide a comprehensive and efficient library service for all users”.
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Since 2009/10, local authorities have spent an ever larger proportion of their budgets on more acute, demand-led services such as adult and children’s social care. Local authorities spent just over half (53.0%) of their budgets on those two services in 2009/10, compared to more than two-thirds (68.5%) in 2024/25. More recently, local authorities’ budgets have come under pressure from rising demand for homelessness and special educational needs and disabilities (SEND) services.
As a result, local authorities’ spending on the more universal services such as road maintenance, waste collection, libraries and youth services has fallen, in some cases extremely steeply. Local authorities cut spending on the last two services by 49.1% and 59.7% in real terms between 2009/10 and 2023/24.
How much financial pressure is local government under?
Between 2018 and 2023, seven local authorities issued a total of 10 section 114 notices (in effect declaring ‘bankruptcy’) because they could not balance their budgets – a legal requirement for all councils. Only two had issued those notices in the preceding 30 years. Local authorities only take this step when there are no other options available to them – it is the most extreme indication of financial distress.
Since the end of 2023, there have been no further section 114 notices issued because a council could not balance its budget. That has happened because local authorities are increasingly relying on unsustainable sources of funding to meet financial obligations.
A government programme which was launched during the pandemic, and which is known as ‘exceptional financial support’ (EFS), is one of the key sources of funding for financially distressed local authorities. EFS is permission from central government for councils experiencing extreme financial pressure to use capital budgets (funding for buildings and equipment), borrowing, or the sale of assets to fund day-to-day spending. In 2025/26, central government granted EFS to a record 28 local authorities, worth £1.3 billion. Some local authorities have been clear that without EFS, they would have had to issue a section 114 notice.
Local authorities are also increasingly relying on their reserves to finance ongoing costs. Reserves are pots of money that councils build up over time to respond to unexpected spending requirements. Unsure of the path of future grant funding, local authorities built up their reserves in the 2010s as a contingency against more cuts. This reached a peak in 2021/22, when upper- and single-tier local authorities held usable reserves that were equivalent to 52.7% of their service spending in that year. Usable reserves have fallen in every year since. At the end of 2024/25, reserves in those authorities sat at 34.5% – the lowest of any year since 2011/12.
By the end of 2024/25 almost half (48.2%) of upper- and single-tier local authorities had drawn down their reserves for three or more consecutive years, the highest level on record. The highest proportion before the pandemic was 13.4%, in 2016/17.
More local authorities than ever have taken the decision to use near to the full increase in council tax from the referendum principle and the social care precept. In 2024/25 and 2025/26, 93.1% and 70.8% respectively of upper- and single-tier local authorities increased their band D council tax by near to the limit imposed by central government. In contrast, the maximum level before the pandemic was 32.8% in 2015/16.
How will local government funding change over the rest of the parliament?
Funding since the 2024 general election
The Labour government set its first full year of funding for local government in 2025/26. In the local government finance settlement for that year, the government laid out plans for a 4.1% real terms increase in spending power between 2024/25 and 2025/26. However, that included £502 million to compensate local authorities for the rise in employers’ national insurance contributions announced at the 2024 autumn budget. Excluding that funding, spending power rose by 3.3% in real terms.
The government also used the 2025/26 and 2026/27 to 2028/29 local government finance settlements to consolidate several small, tightly ringfenced pots of money into larger grants. For example, it merged six previously separate funding streams into a single Children and Families Grant worth £414 million.
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https://www.local.gov.uk/parliament/briefings-and-responses/provisional-local-government-finance-settlement-202526-day
This is designed to give local authorities more flexibilities over how to spend funding.
In the Spending Review 2025, the government set day-to-day budgets for the years 2026/27 to 2028/29. This included local government core spending power projections. Under government spending plans, core spending power for local authorities would increase by an average of 2.7% per year in real terms between 2025/26 and 2028/29.