Hundreds of UK councils on financial cliff edge: parliament
Hundreds of local authorities remain in a financially precarious position as the impact of the increase in national insurance contributions (NICs) on local government remains unassessed.
This is according to a new report from Parliament’s Public Accounts Committee (PAC), which warns that the lack of a government plan for under-pressure local authorities to achieve a sustainable financial position is leaving hundreds of councils in a financially precarious position.
By the end of 2027-28, councils’ overspending on special educational needs and disabilities (SEND)-related budgets could be between £2.9bn-£3.9bn per year.
Since 2021, government has allowed councils to exclude these deficits from their main budgets, under the ‘statutory override’. This is only in place until March 2026. While the government has now indicated that it will bring forward further plans for SEND reform in a white paper on schools in autumn 2025, the PAC previously asked the government to develop a fair and appropriate solution for when the override ends, and to urgently set out its plans by March 2025. No solution had yet been brought forward at the time of this report.
The PAC also warns of the potential impact on local government of the April 2025 increase in the NIC employer rate, and reduction in thresholds at which employers start paying NICs on employee earnings.
The report finds that the government undertook no assessment of the indirect costs to councils. These increases will inevitably have implications, particularly for small charitable organisations, and knock-on effects to the markets, such as in Adult Social Care – which may result in private providers passing on cost increases to local authorities, or handing back contracts.
“Our inquiry heard that the government is concerned about local authority finances,” said Sir Geoffrey Clifton-Brown (Chair of the Committee). “But the lack of urgent action to come forward with a plan to address the fast-approaching cliff edge for under-pressure authorities would seem to suggest it is comfortable with the current state of affairs as normalised background noise.
“Alarmingly, scrutiny of council finances can now provoke a sense of déjà vu, with the same unfixed issues seen over and over. We would urge the government to use the funding announced in this spending review as a starting point for the paradigm shift required.”
Cilfton_Brown warned that even with concrete measures to put councils back on a proper long-term sustainable footing, once again the government seems not to have taken a holistic view of the butterfly effect of its other policies.
“To introduce major changes to national insurance without taking into account the likely effect on an already tottering local government sector is a major misstep. Similarly, aspirations for wide-ranging reforms seem to be unengaged with a reality in which local authorities do not have good and strong capacity to fundamentally change the way they work,” he said.
