Performance Tracker 2025: Local government

Most public services struggled when spending was cut during the early 2010s. But few as much as local government. Cuts were so deep that, even with sustained increases throughout the 2020s, funding is still due to be lower in real terms in 2028/29 than it was almost two decades earlier.

Those cuts were also not distributed equally around the country. More deprived local authorities ended up with far lower levels of funding compared to 2010 than more affluent ones. And as a result of those cuts, Labour inherited a much-changed sector when it entered office in 2024.

When the party last left office, in 2010, local authorities provided many services beyond their statutory duties that supported people to live better lives. Authorities ran more Sure Start centres and operated many more libraries. Youth clubs, and youth services, were a common feature of neighbourhoods up and down the country.

By 2024, local authorities’ focus had long before shifted to financial survival. They had been forced to make cuts to universal, preventative services to ensure they could continue to fund acute, statutory services like adult and children’s social care. Those services used up increasing proportions of their budgets, to the point that one interviewee described a feeling of local authorities becoming “adult social care factories”.

This is a problem for this government in particular. Local government is vital to much of what Keir Starmer wants it to achieve. Labour outlined three principles of public service reform in the 2025 spending review: better integration of services, a focus on prevention and devolving more power to local areas. Vital to all these changes is a well-financed, stable local government sector.

The government has made strides towards reforming the sector. It made a flurry of relatively low-profile but welcome announcements on local government finance, including simplifying some funding pots and changing the process of allocating grant funding. These may eventually contribute to improved financial sustainability and functioning in the sector. But these alone may not be enough to stabilise the sector: the amount of funding is key.

Many public services are on their knees, and have been for years. There is a real risk that, without substantial additional funding, the pattern that emerged during the 2010s – local authorities living in a perpetual state of financial uncertainty – will continue.

Funding for local government

Labour inherited an unstable local government finance environment

As a result of the coalition’s cuts to local government grant funding, spending power in local authorities^* fell by almost a quarter (24.0%) in real terms between 2010/11 and 2019/20. The population grew in that time, meaning that spending power per person fell even further, by 28.8% in real terms.

There was some recovery in the years between 2019/20 and 2024/25, as the Johnson and Sunak governments increased funding for the sector. Even so, by the time Labour took office in 2024/25, spending power was still some 13.5% lower in real terms than in 2010/11, and 22.2% lower when accounting for population growth.

Since more deprived areas received a higher share of their funding from grants in 2010, they were worst hit by cuts. Spending power for the most deprived decile of local authorities fell by a third (32.8%) in real terms between 2010/11 and 2019/20 compared to 13.7% in the least deprived decile of local authorities.

This pattern reversed between 2019/20 and 2024/25, when the most deprived decile of local authorities received the largest increases in spending power: 18.7% in real terms compared to 13.5% for the least deprived decile. This was not enough, however, to offset the scale of the austerity-era cuts to the most deprived authorities’ spending power in the first half of the 2010s and they still experienced the greatest cuts across the entire period between 2010/11 and 2024/25.

_{* Spending power is a measure of the resources that councils can draw on to fund services. In this analysis, it excludes “other” local authorities and is therefore the sum of spending power for shire counties, shire districts, unitary authorities, London boroughs and metropolitan districts.}

Local authorities have become much more reliant on council tax to fund services

Alongside central grant funding, local authorities receive most of their funding from a mix of council tax and business rates (a property tax on non-domestic properties). Of these, council tax is the largest: in 2009/10, just over one-third (34.1%) of local authority funding came from council tax, with the remainder coming from grant funding and retained business rates.^{*, 1} Ministry of Housing, Communities & Local Government, ‘Main Non-Domestic Rating Account 2024-25’, GOV.UK, 21 July 2025, retrieved 26 September 2025, www.gov.uk/government/publications/business-rate-retention-and-non-domestic-rates-2024-to-2025/main-non-domestic-rating-account-2024-25  In the following years, central government substantially cut grant funding, by 40.1% in real terms between 2009/10 and 2019/20.

At the same time, central government discouraged local authorities from raising council tax between 2011/12 and 2015/16. ² Sandford M, Council Tax: Local Referendums , House of Commons Library, 3 February 2025, p.10, https://researchbriefings.files.parliament.uk/documents/SN05682/SN05682.pdf  It did this by offering local authorities grant funding equivalent to the money that they would have received if they had raised council tax, under a programme it called the “Council tax freeze scheme”. ³ Ministry of Housing, Communities & Local Government, ‘Council Tax freeze scheme’, GOV.UK, 29 April 2014, retrieved 26 September 2025, www.gov.uk/government/collections/council-tax-freeze-scheme  This saw the median band D council tax rate fall in real terms from £1,760 to £1,676 between 2009/10 and 2014/15 (in 2025/26 prices), or by 4.5%.

Despite this, local authorities’ income from council tax rose in real terms in every year between 2013/14 and 2019/20. This could be because they were able to charge more households council tax, as the population grew. Combined with the effect of falling grant funding, the proportion of local authority funding that came from council tax rose to a high of 52.0% in 2019/20. There was subsequently a slight reversal in this trend, with the proportion of funding from council tax falling back to 45.6% in 2024/25 (the last year for which data is available). That was mostly due to central government increasing grant funding more quickly in real terms than council tax between 2019/20 and 2024/25.

The increase in local authorities’ reliance on council tax since 2010 has benefited less deprived councils because they derive a greater proportion of their funding from it. As central government caps the amount that local authorities can raise council tax by each year (this limit has been at 5% for councils that provide social care since 2023/24 ⁴ Sandford M, Council Tax: Local Referendums , House of Commons Library, 3 February 2025, p.13, https://researchbriefings.files.parliament.uk/documents/SN05682/SN05682.pdf ),^** the same percentage rise leads to a larger increase in funding for local authorities that receive a greater proportion of their income from council tax.

_{* Since 2013, local authorities have kept 50% of the business rates income that they collect locally. They send the remainder to central government, which then reallocates that money as grant funding.}

_{** This 5% is split into the “social care precept”, which allows local authorities with responsibility for social care to raise council tax by 2% per year, and the “referendum principle”. That principle allows local authorities to raise council tax by up to 3% per year. If they want to raise it further, then they must hold a referendum. If a simple majority vote in favour of the higher increase, the local authority can go ahead. There has only been one referendum held to increase council tax by more than the principle. That was conducted by the Bedfordshire Police and Crime Commissioner in 2015/16, when they wanted to increase council tax by 15.8%. 69.5% of those who voted opposed the increase.}

Local authorities had little choice but to fund children’s and adult social care at the expense of other services

Between 2009/10 and 2024/25, local authorities increased per-person spending on adult and children’s social care by 19.3% in real terms; per-person spending on other services declined by more than a third (-38.1%) in real terms in that time. As a result, the proportion of local authority spending that went on adult and children’s social care went from just over a half (53.0%) in 2009/10 to more than two-thirds (68.5%) in 2024/25.

This shift was due to a combination of tight funding, rising acute demand for social care, increasing cost of delivering care, and statutory duties for local authorities to provide a certain level of care. Local authorities have a legal responsibility to deliver certain services (though the extent of these legal duties is open to interpretation). There are approximately 1,300 such duties, according to one estimate from the Local Government Association (LGA). ⁵ Local Government Association, Councillors’ Guide 2018/19 , Local.gov.uk, 2018, www.local.gov.uk/sites/default/files/documents/11.101%20Councillors%27%20Guide%202018_v10_WEB.pdf  Most notably, these include children’s and adult social care and homelessness services (each covered in full in the respective chapters of this report), which places a large strain on local authorities’ finances.

While population growth is a reasonable proxy for demand for universal services like waste collection and road maintenance, it does not capture changes in demand for some of those more expensive, statutory services. Demand for those has arguably outpaced total population growth while also becoming more complex than in 2010 (again covered more later).

Within non-social care services, there is considerable variation in the extent of cuts that local authorities chose to make. Many cut spending the most on services that arguably have lower political salience, like libraries (by 49.7% in real terms between 2009/10 and 2024/25) and youth services (by 59.7% in real terms between 2009/10 and 2023/24, the last year for which there is data for that service). Meanwhile, services seen as more salient such as waste collection and road maintenance – filling potholes, for example – were relatively protected.

Local authorities cut spending on waste collection by only 7.4% in real terms between 2009/10 and 2024/25. But even in those services it is likely that demand outstripped spending. For example, waste collection is a universal service and the population in England grew by approximately 11% between 2010 and 2024, implying that it would be very difficult for local authorities to provide the same quality of service to every person by 2024.

As a more general pattern, local authorities cut spending the most on the more ‘upstream’ or preventative services, instead prioritising the more acute ones. For example, in children’s services, local authorities spent 71.3% more on acute services in real terms in 2023/24^* compared to 2009/10 (these being ‘looked after children’ and ‘safeguarding children and young people’).

In contrast, local authorities cut spending on preventative services such as children’s centres and services for young people by 78.6% in real terms between those years.

Local authorities followed a similar pattern for housing spending. Between 2009/10 and 2024/25, local authorities increased spending^** on homelessness services by 165.2% in real terms,^*** while cutting spending on housing welfare and support by 73.6% in real terms. 

Cutting spending on those services is a rational response to in-year budgetary pressures. But it also builds up problems for the longer term, by contributing to more demand for some expensive acute services.

_{* As with youth services, this data comes from a dataset which is not updated until later in the year, meaning that 2023/24 is the most recent year for which we have data.
** This refers to total expenditure rather than net current expenditure which we use for most of the rest of this report. We do this because it is a better measure of housing spending than net current expenditure.
*** Though this period also included the introduction of the Homelessness Reduction Act in 2018, which increased local authorities’ duties to prevent and relieve homelessness.}

Funding growth will slow after 2025/26 and may not keep pace with demand 

The government increased local government funding in 2025/26 by 4.1% in real terms. However, this amount includes £502m of funding to compensate local authorities for the higher employers’ national insurance contributions that Labour announced at the 2024 autumn budget. ⁷ Ministry of Housing, Communities & Local Government, ‘Employer National Insurance Contributions Grant Determination 2025 to 2026’, GOV.UK, 14 May 2025, retrieved 26 September 2025, www.gov.uk/government/publications/employer-national-insurance-contributions-grant-determination-2025-to-2026  Excluding that amount, core spending power increased by 3.3% in real terms in 2025/26.

This was slightly below the average growth rate in core spending power between 2022/23 and 2024/25, of 3.7% in real terms. It was, however, well above the anticipated change in funding that was implied by pre-election spending plans. If the Labour government had not increased the envelope at the budget and instead stuck to previous spending commitments, it would have likely meant real-terms cuts to grant funding for local authorities.

Funding will rise further between 2026/27 and 2028/29, albeit at a slower rate: 2.6% per year in real terms. That will leave spending power 2.7% lower in 2028/29 than the levels in 2010/11 in real terms and 15.9% lower when accounting for population growth.

The Recovery Grant directs funds towards more deprived local authorities 

Labour used its first local government finance settlement (for the 2025/26 financial year) to redress the unequal cuts between areas, creating the one-off ‘Recovery Grant’ to direct funding towards the most deprived local authorities. This meant that the most deprived decile of local authorities saw their spending power increase by 8.1% in real terms between 2024/25 and 2025/26, compared to 3.9% for the least deprived decile.

However, using one-off grants is not a sustainable way to rebalance funding. Instead, the Labour government’s Fair Funding Review 2.0 (discussed more below) is intended to more closely tie funding to need for local authority services. If it achieves its intended aims, it will be a more sustainable approach to funding local government.

Despite these increases, funding may not keep pace with other pressures. Some costs that disproportionately affect local government look set to rise faster than economy- wide inflation over the coming years. The National Living Wage (NLW) continues to rise at above-inflation rates, while the government’s decision to end the visa route for care workers might result in adult social care providers charging higher fees for the same level of adult social care (see the adult social care chapter).

Demand is also likely to continue to rise, particularly for temporary accommodation and special educational needs and disabilities (SEND) services. The cost of providing children’s care has risen in recent years due to a combination of increasingly complex care needs, a shift towards more expensive residential care, and a “broken” provider market. ⁹ MacAlister J, The Independent Review of Children’s Social Care: Final Report, Department for Education, 23 May 2022, p.10 https://childrenssocialcare.independent-review.uk/wp-content/uploads/2022/05/The-independent-review-of-childrens-social-care-Final-report.pdf  It is likely this will continue, at least in the short term, as the government begins its reforms for the sector. Among other factors, these will all exert pressure on local authorities’ finances.

Exceptional financial support likely prevented further section 114 (‘bankruptcy’) notices

Under the Johnson and Sunak governments there was a proliferation of local authorities issuing section 114 notices. This is the step that councils take when they cannot balance their budget in a financial year – in effect, declaring themselves ‘bankrupt’. Between 2018 and 2023, eight local authorities issued a total of 12 section 114 notices (some more than once). Just two – Hackney and Hillingdon – had done so in the preceding 30 years.

The Johnson government introduced what is known as ‘Exceptional Financial Support’ (EFS) in 2020/21^* to help local authorities when they were unable to balance their budget. Initially, the government intended to use EFS to support local authorities that were struggling during Covid. ¹² Comptroller and Auditor General, Local Government Finance in the Pandemic, Session 2019-21, HC 1240, National Audit Office, 10 March 2021, p.8, https://www.nao.org.uk/wp-content/uploads/2020/08/Local-government-finance-in-the-pandemic.pdf  The government later expanded the use of EFS to stem the rapid increase of section 114 notices. ¹³ Institute for Government interview.  This was effective on its own terms, preventing any further section 114 notices resulting from insolvency after Nottingham’s in late 2023.^** One interviewee told us that it is almost certain that other local authorities would have had to issue section 114 notices after that if it was not for the government’s expansion of EFS. Somerset Council makes a similar point, saying that it is reliant on EFS “to balance the budget in 2025/26 in order to avoid a Section 114 Notice being issued”. ¹⁴ Hix N, Budget 2025/26 Savings, Pressures, Fees and Charges , Somerset County Council, 3 February 2025, p.6, https://democracy.somerset.gov.uk/documents/s40383/Budget+202526+Savings+Pressures+Fees+and+Charges+Covering+Report.pdf

EFS is very rarely provided as new grant funding by central government but is instead almost entirely a transfer from local authorities’ capital budgets to day-to-day budgets – something that is normally not allowed, but which can be granted by central government in a process known as a “capitalisation direction”. For this reason, they are an unsustainable way to shore up local authorities’ finances, as they encourage the use of one-off pots of money to fund ongoing, day-to-day pressures. This would be more understandable if local authorities claimed EFS once due to unforeseen financial pressures and then returned to financial health. But this is rarely what happens. Many rely on EFS for several years – in the most extreme case Slough, which has relied on EFS in eight consecutive years between 2018/19 and 2025/26.

A capitalisation direction also allows local authorities to borrow to fund day-to-day spending. That borrowing requires local authorities to pay interest and eventually to pay back the total borrowed. This serves to increase financial pressure and risk over the longer term.

Under the Conservative governments, the amount of EFS that central government granted rose from £79.9 million (in 2025/26 prices) in 2018/19 to £1.6 billion in 2024/25, the last year that the Conservative government had control of the system.

_{*  Though allowed some local authorities to claim support for previous financial years, hence why our time series starts from 2018/19.
**  Barnet issued a section 114 notice in January 2025 for making unlawful payments to its pension fund between 2020 and 2023.}

But this government should not rely on exceptional funding measures

The Starmer government announced that it would continue to grant EFS to councils in 2025/26. As a result, 28 local authorities were successful in their applications for EFS in 2025/26, up from 27 in 2024/25. At £1.3 billion, the value of the capitalisation directions was slightly lower in 2025/26 than in 2024/25 (£1.6 billion in 2025/26 prices).

It is understandable that central government would want to avoid section 114 notices, which tend to attract a lot of press attention and raise questions about the sustainability of the sector. But using capital budgets is not a viable approach to funding the system and, naturally, reduces the money available for capital investment in projects and programmes which would likely generate long-term benefit for the council.

The government should aim to wind down the use of EFS. The Fair Funding Review 2.0 may well help some local authorities with this, providing more support to councils struggling under the burden of rising demand for expensive services. Though financial sustainability may require additional funding rather than just redistribution between local authorities.

Left untouched, it seems likely that more local authorities will come forward for EFS. Polling of local authority chief executives carried out by the Local Government Association (LGA, the national membership body of councils in England), showed that 27% and 33% of chief executives thought that without EFS, it was very or fairly likely that they would need to issue a section 114 notice in 2026/27 and 2027/28 respectively. ¹⁵ Local Government Association, Council finances and Autumn Budget 2024 Survey of chief executives , Local. gov.uk, 22 October 2024, p.8, www.local.gov.uk/sites/default/files/documents/Autumn%20Budget%20Survey%20of%20Chief%20Executives%20-%20Report%20-%20Final%20-%2020241021.pdf  This is considerably higher than the 6% who answered in the same way for 2024/25.

The government also allowed six local authorities that received EFS in 2025/26 to raise their council tax by more than the maximum for other local authorities that provide social care (5%).^* These were Bradford (now allowed 10% in 2025/26), Newham (9%), Windsor and Maidenhead (9%), Birmingham (7.5%), Somerset (7.5%) and Trafford (7.5%). ¹⁶ Samuel M, ‘Six social services authorities permitted to increase council tax by more than national limit’, Community Care, 5 February 2025, retrieved 26 September 2025,www.communitycare.co.uk/2025/02/05/six-social-services-authorities-permitted-to-increase-council-tax-above-national-limits/  This is an increase from four local authorities that the government granted the same right to in 2024/25, one of which (Birmingham) received the same permission in 2025/26. ¹⁷ Ministry of Housing, Communities & Local Government, ‘Council Tax Levels Set by Local Authorities in England 2024-25’, GOV.UK, 21 March 2024, retrieved 26 September 2025, www.gov.uk/government/statistics/council-tax-levels-set-by-local-authorities-in-england-2024-to-2025/council-tax-levels-set-by-local-authorities-in-e…

Of those local authorities that were granted permission to raise council tax by more than the usual limit in 2025/26, most of these had council tax rates below the median, with two – Windsor & Maidenhead, and Newham – having very low levels of council tax. In 2024/25, they had the 9th and 7th lowest band D council tax of the 130 single- tier authorities in England. In contrast, Birmingham was at the 33rd percentile for council tax in 2023/24, but rose to the 56th percentile after two years of above-5% council tax increases. This followed Birmingham’s issuance of a section 114 notice in September 2023.

_{* The government has allowed this by raising the threshold at which those local authorities would have to hold a referendum to raise council tax rates.}

Local authorities’ reserves have fallen beneath pre-pandemic levels

Reserves are another source of potential funding for local authorities. The Chartered Institute of Public Finance and Accountancy (CIPFA) say that local authorities hold reserves for three reasons: to help smooth uneven cash flows, to provide financial flexibility to respond to unexpected events or emergencies, and to finance known future spending requirements. ¹⁸ Chartered Institute of Public Finance and Accountancy, English Local Authority Reserves, CIPFA, June 2015, retrieved 26 September 2025, www.cipfa.org/policy-and-guidance/reports/english-local-authority-reserves

Over the 2010s, the level of local authority reserves increased. In 2009/10, upper- and single-tier local authorities held reserves of 22.1% of total service expenditure. This rose to 40.8% in 2018/19, the last year unaffected by the pandemic. The increase was even larger for lower-tier authorities (district councils): from 49.8% to 133.0%. 

Interviewees told us that this was a response to funding uncertainty under the governments of the 2010s. Unsure of the extent and timing of future cuts to grant funding, local authorities added to their reserves to smooth further anticipated drops in funding. ¹⁹ Comptroller and Auditor General, The Local Government Finance System in England: overview and challenges , Session 2021-22, HC 858, National Audit Office, 10 November 2021, p.33, https://www.nao.org.uk/wp-content/uploads/2021/11/The-local-government-finance-system-in-England-overview-and-challenges.pdf

Reserves increased further during the pandemic, to a high of 58.8% for upper- and single-tier authorities in 2020/21 and 167.4% for lower-tier authorities in 2021/22. Some of this was because central government provided local authorities with up-front funding in relation to Covid pressures, which was intended to cover multiple years of funding shortfall, notably for lost business rates income. ²⁰ Ministry of Housing, Communities & Local Government, ‘Local Authority Revenue Expenditure and Financing: 2020-21 Final Outturn (Revised)’, 30 June 2022, p.19, https://assets.publishing.service.gov.uk/media/62bb03c38fa8f5720664a4b8/Local_authority_revenue_expenditure_and_financing_England_2020_to_2021_Final_…  Local authorities then put that funding into their reserves and drew it down over the coming years. But reserves increased even excluding Covid funding. This could have been because local authorities were able to fund services through Covid support, rather than through council tax and normal grants, with the differences going into reserves.

Since the pandemic, reserves have steadily fallen again. And in 2023/24 – just before Labour won the general election – reserves had fallen beneath 2018/19 levels for both district councils and upper- and single-tier authorities: 38.1% and 128.2%. Some of that is likely in response to increasingly difficult financial positions in many local authorities.

Upper- and single-tier authorities’ reserves declined further in 2024/25, to 34.5% of service expenditure. That is a lower level than any year since 2011/12 and a 3.6 percentage point drop from 2023/24. The drop was particularly large among London boroughs, where reserves fell from 51.3% in 2023/24 to 43.6% in 2024/25, though this still left them with the highest level of reserves compared to other upper- and single-tier authorities; the next highest was metropolitan districts at 34.5%.

In contrast, district authorities saw an increase in their reserves as a proportion of expenditure in 2024/25, to 135.9%, up from 128.2% in 2023/24.

There is considerable variation in local authorities’ reserves

While the average level of reserves in upper- and single-tier authorities was 34.5% at the end of 2024/25, this obscures a wide range of values. At the upper end of the distribution, 5% of those local authorities had reserves at levels that were more than 81.6% of their service expenditure in 2024/25. Meanwhile, at the lower end of the distribution, 5% of local authorities had reserves beneath 11.3% of their service expenditure.
 

When splitting reserves between local authorities that have received exceptional financial support (EFS) and those that haven’t, there is a stark difference. Since 2009/10, the local authorities that would eventually go on to claim EFS have consistently had lower reserves than non-EFS authorities. But the gap between those authorities widened in recent years. Between 2009/10 and 2018/19, the gap never exceeded 12.4 percentage points (ppts) which was in 2018/19; by 2024/25, it had nearly doubled to 23.4ppts. Non-EFS local authorities had reserves of 42.5% on average in 2024/25, compared to 19.0% for local authorities that had claimed EFS at any point between 2018/19 and 2025/26.

Local authorities that have claimed EFS ran down their reserves more quickly since the pandemic than other local authorities. This implies that as they entered financial distress, they relied more heavily on reserves to meet funding requirements.

Local authorities drawing down reserves is a sign that their finances are becoming increasingly tight, and is even more concerning if done across several years. So it is worrying that almost half (48.2%) of local authorities did so for the third or more consecutive year in 2024/25. In comparison, the highest pre-pandemic level for that statistic was 13.4% in 2016/17.

It is not a sustainable situation for large swathes of local authorities to continue to draw down reserves; eventually that source of funding will run out.

Extending the statutory override was right, but is not a long-term solution

Rising demand for SEND services has placed local authorities under substantial financial strain (see the Schools chapter). Councils provide schools with top-up funding to help meet the additional costs of supporting pupils with SEND, but the Dedicated Schools Grant (or DSG, the part of council budgets reserved for school spending) has failed to keep pace with demand. As a result, deficits have, for the most part, grown since 2018/19. ²¹ Department for Education, ‘LA and School Expenditure’, GOV.UK, 12 December 2024, retrieved 26 September 2025,https://explore-education-statistics.service.gov.uk/find-statistics/la-and-school-expenditure/2023-24

As the threat of further section 114 notices loomed, the Johnson government intervened. In 2020/21, it created the ‘statutory override’, an accounting mechanism that separates SEND deficits from the rest of council accounts. ²² Roberts N and Burnett H, Dedicated Schools Grant, House of Commons Library, 2 May 2025, https://researchbriefings.files.parliament.uk/documents/CDP-2025-0090/CDP-2025-0090.pdf  This eases the immediate risk, but leaves councils’ underlying finances unchanged.

The statutory override was due to expire in 2023 but was extended to March 2026 by the previous government. Estimates suggest that two-fifths ²³ Comptroller and Auditor General, Support for Children and Young People with Special Educational Needs , Session 2024-25, HC 299, National Audit Office, 24 October 2024, https://www.nao.org.uk/wp-content/uploads/2024/10/support-for-children-and-young-people-with-special-educational-needs.pdf  of councils will have deficits close to or exceeding their reserves by March 2026. If SEND deficits suddenly stopped being ignored at that point with no further plan in place, many would have to issue a section 114 notice.

The current government extended the override again, all the way to March 2028. While this gave councils much-needed certainty over their finances, and the government time to work out and implement a solution, it cannot continue indefinitely. In 2023/24, councils in England had DSG deficits totalling £1.9bn (in 2025/26 prices), equal to 5.8% of that year’s grant.^{*, 23} Department for Education, ‘LA and school expenditure, financial year 2023-24’, GOV.UK, 12 December 2024, retrieved 26 September 2025, https://explore-education-statistics.service.gov.uk/find-statistics/la-and-school-expenditure/2023-24  The Department for Education estimates that by March 2026, the cumulative deficit in England will be between £4.6bn and £5.2bn (in 2025/26 prices). ²⁴ Comptroller and Auditor General, Support for Children and Young People with Special Educational Needs , Session 2024-25, HC 299, National Audit Office, 24 October 2024, www.nao.org.uk/wp-content/uploads/2024/10/support-for-children-and-young-people-with-special-educational-needs.pdf  Many local authorities are dipping into their reserves to finance those deficits, reducing their financial resilience and increasing the likelihood of them borrowing money to fund services. ^{**, 25} County Councils Network, ‘SEND deficits: government avoids ‘financial cliff edge’ for councils but a comprehensive solution is now critical’, County Councils Network, 20 June 2025, retrieved 26 September 2025, www.countycouncilsnetwork.org.uk/send-deficits-government-avoids-financial-cliff-edge-for-councils-but-a-comprehensive-solution-is-now-critical/

The override’s new expiry date is before the end of this parliament. One interviewee suggested that this timing, combined with the government’s commitment to taking on SEND reform, makes a further extension very unlikely. ²⁶ Institute for Government interview.  The government has said it will announce next steps in the Local Government Finance Settlement later this year, after it has outlined its SEND reforms in the autumn.

_{* These figures have been taken from section 251 outturns, which give details of local authority revenue expenditure. Other estimates differ on the size of this deficit.
** Local authorities cannot borrow directly to pay off the deficit. But, as the National Audit Office reports, using reserves “could mean borrowing more than they otherwise would for other purposes”.}

Labour has made good progress on reforming local government finance

Financial instability in local government has been driven by the long-term pressures described above and exacerbated by other decisions made by recent governments. Substantial reform of the system is needed to return local government to financial stability. The Theresa May government first promised a review of local authorities’ relative needs for funding in 2016. ²⁷ Local Government Association, ‘Update on the Fair Funding Review’, September 2016, www.local.gov.uk/sites/default/files/documents/fair-funding-review-0fe.pdf  A succession of Conservative governments then repeatedly ducked those difficult reforms, preferring to rely on short-term fixes – such as EFS and the statutory override. It is therefore very welcome that this government is grasping the nettle.

The government’s changes to funding allocations are sensible and long overdue

Some of these changes do not require large-scale reorganisation but are instead about allocating existing budgets more effectively. Conservative governments fell into a habit of providing the sector with single-year finance settlements – indeed, the last multi-year settlement came under Theresa May’s government, for the years 2016/17 to 2019/20. ²⁸ Department for Communities and Local Government, ‘The Provisional Local Government Finance Settlement 2016-17 and an Offer to Councils for Future Years: Consultation Document’, December 2015, https://assets.publishing.service.gov.uk/media/5a817a48ed915d74e33fe6c9/Provisional_settlement_consultation_document.pdf

The Starmer government has committed to allocating funding for the rest of this spending review period, starting from April 2026, with the first announcement of allocations coming in December 2025, as part the Local Government Finance Settlement. This should give local authorities more certainty about grant income, allowing them to plan spending more effectively, though as previously discussed, they already have reasonable certainty over council tax and sales, fees and charges income.

After the coalition cut down on the number of small, time-limited pots of money from central to local government, governments from 2015 increased their use again. This was restrictive for local authorities, as it meant they could not spend it on their own priorities and these pots of money often came with onerous requirements for councils to report how they had spent the funding to central government.

This government committed to moving away from this approach and used the 2025/26 local government finance settlement to merge previously fragmented pots of funding into larger pots. For example, it merged six previously separate funding streams into a single Children and Families Grant worth £414 million. ²⁹ Local Government Association, ‘Provisional Local Government Finance Settlement 2025/26: On-the-day factual briefing’, 18 December 2024, retrieved 26 September 2025, www.local.gov.uk/parliament/briefings-and-responses/provisional-local-government-finance-settlement-202526-day

More structurally, successive Conservative governments starting from 2016 promised to update the funding formulae for local government as part of the Fair Funding Review but failed to make any changes. ³⁰ Sandford M, The Fair Funding Review: What does it mean for local government, House of Commons Library, 31 May 2018, https://commonslibrary.parliament.uk/the-fair-funding-review-what-does-it-mean-for-local-government/  This government has instead made relatively quick progress with reform already, announcing the conclusion of the Fair Funding Review 2.0 in June 2025, ³¹ Ministry of Housing, Communities & Local Government, ‘The Fair Funding Review 2.0’, GOV.UK, 20 June 2025, retrieved 26 September 2025, www.gov.uk/government/consultations/the-fair-funding-review-20  with the explicit intent of better aligning funding with need.

Those changes could have a major impact. The review will, first, update the formulae that central government has been using to calculate an area’s need for various council- provided services. It does that by assessing the prevalence of factors within a local authority that are associated with need for those services. For example, the proposed update to the adult social care relative needs formula considers things such as the proportion of the over-65 population in a local authority area that are aged over 80, and the proportion of adults over 65 that claim a range of benefits. ³² Ministry of Housing, Communities & Local Government, ‘E: Technical Annex on the Adult Social Care (ASC) Relative Needs Formula (RNF) consultation’, GOV.UK, 23 June 2025, retrieved 26 September 2025, www.gov.uk/government/consultations/the-fair-funding-review-20/e-technical-annex-on-the-adult-social-care-asc-relative-needs-formula-rnf-consultation  In addition to updating existing formulae, the review proposes introducing new formulae to estimate demand for services such as road maintenance and home-to-school transport for children with special educational needs. ³³ Ministry of Housing, Communities & Local Government, ‘The Fair Funding Review 2.0’, GOV. UK, 20 June 2025, retrieved 26 September 2025, p.32 https://assets.publishing.service.gov.uk/media/688237662b6fd60b7c161009/Version_14For_publicationFair_Funding_Review_2.0.pdf

Second, the review will assess the extent to which local authorities can raise revenue themselves and adjust grant funding accordingly. It will do this by looking at the council tax base for each local authority. A local authority’s tax base is a count of the number of dwellings that are eligible for council tax in each local authority, split by the council tax band. Under the government’s proposed approach, local authorities with higher council tax bases will receive lower grant allocations than those with lower council tax bases. ³⁴ Ministry of Housing, Communities & Local Government, ‘K: Technical Annex on Resources Adjustment’, GOV.UK, 20 June 2025, retrieved 26 September 2025, www.gov.uk/government/consultations/the-fair-funding-review-20/k-technical-annex-on-resources-adjustment  This does not consider the current council tax rates that local authorities charge. If a local authority has chosen to keep rates low and has a large council tax base, it may lose out from this approach.

Including an assessment of needs and resources in the calculation of grant allocations to local government is in many ways a return to a past method. Until 2013/14, central government undertook an annual assessment of local authorities’ needs and ability to raise local revenue. From 2013/14 onwards, the coalition government ended that approach. That government was concerned that the approach disincentivised local authorities from growing their council tax base – for example by allowing more housing development – because they would receive a commensurate cut in their grant funding. ³⁵ Smith N, Phillips D and Simpson P, A Time of Revolution? British Local Government Finance in the 2010s, Institute for Fiscal Studies, October 2016, p.19 https://ifs.org.uk/sites/default/files/output_url_files/R121.pdf

Finally, the review will include adjustments for the relative costs of providing a service around the country. For example, it is generally more expensive to provide services in a local authority in London than in other parts of the country. The current means of allocating funding does not account for differences in costs across local authorities, but the previous government included a similar proposal in its unimplemented version of the Fair Funding Review. ³⁶ Ministry of Housing, Communities & Local Government, ‘Fair Funding Review: a review of relative needs and resources’, December 2017, p.23, https://assets.publishing.service.gov.uk/media/5a82c51840f0b62305b943ff/Fair_funding_review_consultation.pdf

These changes sound technical but will be transformational to the way that central government funds local government. The last time that the relative needs formulae were updated was in 2013, with funding, demographic and demand pressures having changed considerably since then.

While this is the right thing for the government to do, it will not be painless. Adjusting and updating the formulae used to calculate grant funding allocations means that there will be local authorities that experience a substantial decline in their funding, particularly due to the assessment of council tax bases. Work from the Institute for Fiscal Studies (IFS) shows that inner London boroughs are set to be the biggest losers. The IFS estimates that Wandsworth, Camden, Hammersmith & Fulham, Kensington & Chelsea, and Westminster would see their funding cut by a quarter if the changes were implemented immediately (which will not happen). ³⁷ Ogden K and Phillips D, Fair Funding Review 2.0: the impacts on council funding across England, Institute for Fiscal Studies, August 2025, p.6, https://ifs.org.uk/sites/default/files/2025-08/IFS_report_Fair-Funding-Review2_0_0.pdf

The government is taking steps to mitigate some of this. It intends to introduce the reformed system in April 2026 but then phase the full reforms in over the course of three years, meaning that no local authority will lose all their income in one year. But this does, of course, also mean that those authorities that are set to gain most from the new funding approach (for, as we say, the right reasons) will have to wait some time to fully benefit.

The government is tackling the backlog in local government audit

Decisions taken by Conservative-led governments in the 2010s increased financial risk in local authorities while simultaneously making it much harder for anyone outside a local authority to understand the full extent of that risk.

On the former, the coalition relaxed rules about local authority borrowing, allowing councils far more freedom to invest. ³⁸ HM Treasury, ‘More financial freedom for local authorities’, press release, GOV.UK, 20 September 2010, retrieved 26 September 2025, www.gov.uk/government/news/more-financial-freedom-for-local-authorities  Combined with then-relatively low costs of borrowing, this led to a 27.6% real-terms increase in local authority borrowing between 2013/14 and 2019/20. Many used that borrowing prudently, but some invested in relatively risky ventures. For example, Thurrock council invested over £100m (financed through borrowing) in a solar farm company, the owner of which then allegedly spent the money “for his personal benefit”. ³⁹ Gilmore A, ‘Thurrock accuses businessman of misusing £150m ‘largely for personal benefit’’, Room151, 15 August 2024, retrieved 26 September 2025, www.room151.co.uk/151-news/thurrock-accuses-businessman-of-misusing-150m-largely-for-personal-benefit/  Thurrock issued a section 114 notice in 2022 with its total borrowing reaching £1.5bn in March 2023, more than 13 times higher than its core spending power.

Borrowing fell again after the Conservative government tightened rules in 2020, though it was still 20.2% higher in real terms in 2024/25 than in 2013/14.

When looking at the ratios of borrowing to spending power, there is once again a distinction between the local authorities that claimed EFS at any point between 2018/19 and 2025/26 and other local authorities. On average, the ratio of all local authorities’ debt to spending power increased across England between 2013/14 and 2024/25, from 1.11 to 1.81. Local authorities that would go on to claim EFS started the time period with more debt as a proportion of spending power than other local authorities (1.37 compared to 1.04) but saw a much larger rise over subsequent years. By 2024/25, the ratios were 2.81 and 1.58 respectively.

Alongside the growth in local authority borrowing in the 2010s, the coalition abolished the Audit Commission in 2015, dispersing responsibilities for local government audit across a wide range of organisations. Oversight of the system shifted to the Department for Communities and Local Government (DCLG) – now the Ministry of Housing, Communities and Local Government (MHCLG) – while responsibility for securing auditors passed to the Public Sector Audit Appointments (PSAA) organisation, which commissioned private sector firms to carry out the audits. ⁴⁰ Comptroller and Auditor General, Progress update: Timeliness of local auditor reporting on local government in England , Session 2022-23, HC 1026, National Audit Office, 25 January 2023, p.15, www.nao.org.uk/wp-content/uploads/2023/01/progress-update-timeliness-of-local-auditor-reporting.pdf

The functioning of that market quickly deteriorated. In 2018/19, only 57% of local government bodies published accounts including an audit opinion by the statutory deadline, down from 97% in 2014/15. ⁴¹ Comptroller and Auditor General, Timeliness of local auditor reporting on local government in England, 2020, Session 2019-21, HC 1243, National Audit Office, 16 March 2021, p.19 www.nao.org.uk/wp-content/uploads/2021/03/Timeliness-of-local-auditor-reporting-on-local-government-in-England-2020-.pdf  The National Audit Office (NAO) found that part of the reason for this was insufficient capacity in audit firms, itself down to “the relative unattractiveness of local public body audit work compared with alternative audit opportunities”. ⁴² Ibid., p. 25.  As a result of the capacity crunch in local government audit, just 1% of local authorities’ accounts were published with an audit opinion for the 2022/23 financial year by the deadline of 30 September 2023. ⁴³ Levelling Up, Housing and Communities Committee, Financial Reporting and Audit in Local Authorities: First Report of Session 2023-24 , HC 59, House of Commons, 24 November 2023, p.18, https://committees.parliament.uk/publications/42279/documents/210125/default/

The Johnson and Sunak governments committed to establishing the Audit Reporting and Governance Authority (ARGA) to act as a “system leader” for local government audit, ⁴⁴ Ministry of Housing, Communities and Local Government, ‘Greater transparency and value for money for council finance system’, press release, GOV.UK, 31 May 2022, retrieved 26 September 2025, www.gov.uk/government/news/greater-transparency-and-value-for-money-for-council-finance-system  but never achieved that ambition.

One of the first things the Labour government did in 2024 was to delay the “backstop date” (a deadline by which local authorities are required to publish delayed accounts) to begin to clear the backlog. ⁴⁵ Financial Reporting Council, ‘FRC publishes annual report as ARGA transformation continues’, 21 July 2023, retrieved 26 September 2025, www.frc.org.uk/news-and-events/news/2023/07/frc-publishes-annual-report-as-arga-transformation-continues/  The government did this knowing that it would likely entail many auditors issuing “disclaimed opinions” alongside those accounts – a step that auditors take when they are unable to obtain “sufficient appropriate audit evidence”, meaning they cannot take a view as to whether the accounts are accurate. ⁴⁶ Institute of Chartered Accountants in England and Wales, ‘Understanding audit reports’, ICAEW, 29 September 2023, retrieved 26 September 2025, www.icaew.com/technical/audit-and-assurance/audit/reporting-and-completion/understanding-audit-reports  The Local Government Chronicle reports that this outcome came to pass, with 158 local authorities publishing accounts with disclaimed opinions for 2022/23 by the backstop date. ⁴⁷ Webb C, ‘Over 300 disclaimed audit opinions’, LGC, 10 March 2025, retrieved 26 September 2025, www.lgcplus.com/finance/over-300-disclaimed-audit-opinions-10-03-2025/

More recently, the government has announced that it will establish the Local Audit Office (LAO) which it is legislating for in its English Devolution and Community Empowerment Bill. ⁴⁸ HM Government, English Devolution and Community Empowerment Bill , CP 283, The Stationery Office, 2024, p.61, https://publications.parliament.uk/pa/bills/cbill/59-01/0283/240283.pdf  The LAO will oversee the entire local government audit system, a role which will include commissioning and appointing auditors, taking on the code of practice for auditors from the NAO, issuing guidance to auditors, and collating and analysing audit reports. ⁴⁹ Ministry of Housing, Communities & Local Government, ‘Local audit reform: a strategy for overhauling the local audit system in England’, GOV.UK, 9 April 2025, retrieved 26 September 2025, www.gov.uk/government/consultations/local-audit-reform-a-strategy-for-overhauling-the-local-audit-system-in-england/local-audit-reform-a-strategy-for…

It is right to put prevention and place-based working at the heart of service delivery

The Starmer government has also decided to place a greater focus on prevention in all public services and has already made some progress in local government. It has created the Children’s Social Care Prevention Grant ⁵⁰ Ministry of Housing, Communities & Local Government, ‘Explanatory note on Core Spending Power: final local government finance settlement 2025 to 2026’, GOV.UK, 3 February 2025, retrieved 26 September 2025, www.gov.uk/government/publications/explanatory-note-on-core-spending-power-final-local-government-finance-settlement-2025-to-2026/explanatory-note-on…  and expanded the homelessness prevention grant, launched under the previous government. ⁷¹ Ministry of Housing, Communities & Local Government, ‘Homelessness Prevention Grant allocations: 2025 to 2026’, GOV.UK, 18 December 2024, retrieved 26 September 2025, www.gov.uk/government/publications/homelessness-prevention-grant-allocations-2025-to-2026

It is also placing a greater focus on place-based working. We are very supportive of this approach, and it is welcome to see the creation of the prevention demonstrator in Greater Manchester and, prior to her departure from government, Angela Rayner’s announcement of Total Place-style pilots. ⁵² Ministry of Housing, Communities & Local Government, ‘Local Government Association Conference 2025’, speech at the Local Government Association, GOV.UK, 3 July 2025, retrieved 26 September 2025, www.gov.uk/government/speeches/local-government-association-conference-2025  There is, however, a risk to this agenda following Keir Starmer’s reshuffle in early September 2025. Three of the strongest proponents of place-based working in government were either moved to a different department (Georgia Gould), fired from their ministerial job (Jim McMahon) or resigned (Rayner). It is unclear how supportive the new ministerial team is of this agenda.

So far, progress on these has been mostly rhetorical and much of the difficulty will come with implementation. Many governments said they wanted to make a shift towards prevention, but few achieved it. A particular barrier for local authorities is the need to fund acute services while attempting to rebalance funding towards preventative services. As previous Institute for Government work shows, this may be difficult without some amount of ‘double-running’.

Local government reorganisation will distract from service delivery during this parliament and is not guaranteed to deliver savings

Alongside reforming the local government finance system, the government is also undertaking a programme of “local government reorganisation” (LGR). This will effectively abolish two-tier local authorities – shire districts and shire counties – replacing them with unitary authorities. ⁵⁵ Ministry of Housing, Communities & Local Government, ‘Local government reorganisation: policy and programme updates’, GOV.UK, 6 February 2025, retrieved 26 September 2025, www.gov.uk/government/collections/local-government-reorganisation-policy-and-programme-updates  This is not a new process. Since April 2019, there have been nine new unitary authorities created from the merger of district and county councils. What is novel under this government is the requirement that all areas that currently operate under a two-tier system move to a single-tier system.

There are valid arguments for this approach. The government identifies reducing competition for staff, improving local accountability, transforming services, and realising “efficiencies” (by which it means saving money) as benefits of moving to unitary authorities. ⁵⁶ HM Government, English Devolution White Paper: Power and Partnership — Foundations for Growth , CP 1218, The Stationery Office, 2024, p.102 https://assets.publishing.service.gov.uk/media/67ade9866e6c8d18118acd58/English_Devolution_White_Paper_Web_Accessible.pdf  Examples of savings include the reduction in duplication of back- office functions across district and county councils and better integration of services like social care and housing when they are in the same organisation.

But LGR also comes with costs. For the areas that go through this process, it will be time consuming and absorb attention. Institute for Government analysis predicts that new unitaries could take power from April 2028. But interviews with local authorities that have gone through LGR indicate that the process rarely stops then, with service transformation and other changes continuing for years afterwards. If that comes to pass, LGR could absorb attention in those local authorities for all of this parliament, if not longer.

Interviewees from areas that have been through LGR relayed that in their experience, the delivery challenges of LGR meant that they put aside service transformation programmes and neglected relationships with key public service delivery partners. Both could harm service performance in the short term.

At least some of the rationale for LGR is saving money, as outlined in the government’s English devolution white paper. And, again, there is some merit to this. But the government should be wary of relying on quick or substantial savings from LGR. There is no guarantee that unitarisation will put local authorities on a more sustainable financial footing. Of the nine local authorities^* that have been created through unitarisation since 2019/20, five requested and received exceptional financial support from central government between 2023/24 and 2025/26 – Somerset, West Northamptonshire, North Northamptonshire, Cumberland, and Westmorland & Furness. It may have been the case that the predecessors for those authorities would have claimed EFS. But it is certainly the case that reorganisation did not stop them from needing to do so.

The government has not published information of the savings it expects from LGR. Reporting from the BBC revealed that the government did not carry out its own analysis of potential savings, instead relying on an estimate which came from the County Councils Network (CCN) in 2020. ⁵⁸ Nevett J, ‘Ministers didn’t do cost review of council mergers’, BBC News, 29 August 2025, retrieved 26 September 2025, www.bbc.co.uk/news/articles/cj9wxnlnrxdo  Under the CCN's most recent analysis, a single unitary authority on the footprint of the old county council will realise estimated savings of £2.9bn over five years. ⁵⁹ County Councils Network, ‘Updated financial analysis: evaluating the importance of scale in proposals for local government reorganisation’, CCN, 7 March 2025, retrieved 26 September 2025, www.countycouncilsnetwork.org.uk/updated-financial-analysis-evaluating-the-importance-of-scale-in-proposals-for-local-government-reorganisation/ ** Scenarios in which county councils fragmented into three or more unitary authorities resulted in no savings, or a loss over five years. ⁶⁰ Ibid.

In sum, financial difficulties are widespread across the local government sector. While the reforms that the government is undertaking are encouraging – and they should be commended for tackling thorny issues – there is only so far this can take them. Many of the issues in local government are the result of a lack of funding and local authorities having to make difficult decisions between competing budget areas.

The range of reform programmes happening in the sector^*** may help improve value for money. Better matching funding to need is a positive first step, for instance, and efficiencies from LGR may help – albeit at the margins. But in the absence of larger-scale funding increases it seems likely that difficult choices will continue to face many councils.

_{* These are Dorset, Bournemouth, Christchurch and Poole (BCP), Buckinghamshire, North Northamptonshire, West Northamptonshire, Somerset, Westmorland and Furness, Cumberland and North Yorkshire.}

_{** An earlier version of this incorrectly stated that CCN had downgraded its savings estimate between 2020 and 2025}

_{*** Particularly in in children’s social care, SEND services, and homelessness services.}

Service performance

Almost no local authorities perform well across all services, likely because funding pressures force prioritisation

As discussed above, local authorities are often forced into making difficult funding choices between services. No matter how well run a council is, it is not possible to avoid these trade-offs. And the difficulties of these trade-offs have increased since 2010 as local authorities have gone through successive rounds of savings and transformation programmes. Our analysis looks at one performance metric for each of nine different local authority public services^* and finds no local authorities that perform well – or poorly – across the board.

Obviously, local authorities operate in diverse contexts, with varying funding constraints, levels of deprivation, age profiles and rurality, among other factors. Without adjusting for these contextual factors, the analysis risks misclassifying councils that are over- or under-performing relative to their circumstances. For example, a council that appears to perform poorly might actually be achieving strong outcomes across the board, despite a challenging local context.

We therefore adjust for some of these contextual factors and calculate the expected performance for each local authority, given differences in their observed characteristics.^** If a local authority does better than would be expected in any given service, given its characteristics, they are overperforming relative to expectation – and vice versa.

For example, the Wirral would be expected to have only a slightly above-average share of its over-65 population accessing adult social care – our metric of performance for that service – shown in the chart below by its position just to the right of the y-axis. Its relatively strong spending power would normally support greater access, while its larger-than-average older population would push the other way.^*** Thurrock, by contrast, would be expected to see slightly below-average access. But in practice, both perform much better than that. In the Wirral, the proportion of the over-65 population that receives publicly funded adult social care is almost two standard deviations higher than in the average local authority.

Overall, there are very few local authorities performing consistently above or below expectations. With only two exceptions, every authority performs better than expected in at least one service and worse in at least one other.

By looking at the exceptions, or near-exceptions, in more detail, we can start to understand how some local authorities are bucking the trend, delivering more high- quality services than others in the face of resource constraints. There are four local authorities that overperform on at least 80% of the services for which we have data: Salford (100%), the Isle of Wight (89%), Wokingham (89%) and Barking and Dagenham (88%).^**** Salford’s lowest-performing service is planning, but even there it is half a standard deviation better than expected. However, Salford lacks data on its road maintenance and homelessness services, which most other local authorities are not missing.

And six local authorities overperform by more than 0.5 standard deviations, on average, across all services. These are: Salford (again), Telford and the Wrekin, South Gloucestershire, Solihull, Ealing, and the Isle of Wight (again).

Senior officials in one of these local authorities attributed their strong performance to a few factors. First, they said that stable political leadership over many decades meant that members were able to take a longer-term view during austerity, meaning they were less inclined to make knee-jerk, short-term cuts to balance budgets in-year. Second, recent localised economic growth – driven by rising investment in the area – had increased employment opportunities and reduced some of the demand pressures that they might otherwise have faced. Finally, consistent and deliberate decisions by political leaders to prioritise prevention meant the council was able to maintain investment in services such as early years and youth services, reducing acute demand in the long term – an approach that the Institute for Government strongly supports.

In July 2025, the government announced and began consulting on plans for a Local Government Outcomes Framework, which sets 15 outcomes that are to be delivered by local authorities in partnership with central government. ⁶² Ministry of Housing, Communities & Local Government, ‘Local Government Outcomes Framework: call for feedback’, GOV.UK, 3 July 2025, retrieved 26 September 2025, www.gov.uk/government/publications/local-government-outcomes-framework-call-for-feedback  Each outcome reflects a key national priority and will be assessed using a range of metrics, with the aim of introducing a new approach to outcome-based accountability that strengthens councils’ ability to shape local priorities.

While giving councils greater flexibility over how they allocate resources is welcome, the government must also acknowledge the difficult trade-offs every area faces in the current financial climate. Very few councils are able to perform at a high level across all services, so it must carefully consider how the framework is used to assess performance. In particular, it should avoid placing excessive weight on any single outcome unless it is willing to substantially increase local government funding. Otherwise it risks weakening rather than strengthening councils’ ability to balance competing needs.

_{*  Adult social care, children’s social care, homelessness, drug and alcohol treatment, recycling, waste management, libraries, planning and early-years health visits.
**  Core spending power per capita, rurality, deprivation, age structure, ethnicity, proportion for whom English is their main language, proportion of households claiming housing benefit or personal independence payments, overcrowding, housing density and affordability, and the accessibility of key services by public transport. See Methodology for more details.
***  Recent Institute for Government research explores drivers of adult social care performance in greater detail.}

_{**** Barking and Dagenham is missing data for road maintenance.}

Recommendations

Local government has struggled for over a decade. The joint burdens of severe financial pressure, increasing complexity of demand and onerous statutory duties have left a great many local authorities on which the public rely to make unenviable decisions. Some are in real danger of collapse.

The government has launched reform programmes that will start to address these issues. Many reflect recommendations long put forward by the Institute for Government – so it is very welcome to see, for instance, the government move ahead with the Fair Funding Review, a multi-year finance settlement, the reduction of small pots of grant funding, and children’s social care reform. But more can be done

1. Better integrate services both within and outside local government

Services in a local area are delivered in a way that often results in duplication of work and spending. Multiple services assess and case-manage the same people, each tackling different symptoms of what is often a single problem. For example, someone living in poor housing may seek temporary accommodation from local authority housing services, medical help from their GP for damp-related illness, and support from social services because they cannot wash themselves in a poorly equipped bathroom. Each service supports that person to the best of their ability, but rarely addresses the underlying issue: in this case, poor-quality housing. Until that is fixed, the same problems – and costs – reappear, and may even worsen.

Poor integration is largely the result of silos in government funding and service delivery, which direct each agency’s attention only to the relevant symptoms of the problem. The government typically allocates money through departments, which fund specific services such as the NHS, schools or local authorities. Each agency is therefore incentivised to push activity into another service, regardless of the overall cost to the taxpayer. A patient that is medically fit for discharge, for instance, may remain in hospital while agencies decide who should fund their care, delaying the patient’s rehabilitation and stopping the hospital from using the bed for another patient.

To combat this, the Institute for Government has previously recommended that the government tries to shift towards a more place-based model of funding. This would mean services pooling budgets within a local area and then deciding jointly how to spend them to achieve desired outcomes, redesigning services around the needs of users. This is based on the model of Total Place, first trialled by the last Labour government, which evaluations found was delivering, or was on track to deliver, a range of improved outcomes in the areas in which it was piloted.

There is also often poor communication between and within sectors. The problems posed in the example above are often exacerbated by a lack of awareness of the person’s interactions with other services. Improved data sharing between and within services – homelessness services, the local GP and social workers – would help ameliorate this issue, as we recommend in the cross-service analysis of this report. Future Institute for Government work will provide more concrete recommendations for how to achieve this.

2. Central government should prioritise prevention

Local authorities are stuck in a vicious cycle of cutting preventative spending to meet acute demand, which contributes to further demand for those acute services in the future. Interviewees from local authorities often argue that the only way to break the cycle is to go through a period of “double-running” under which central government provides sufficient funding to cover acute pressures while also allowing for additional investment in more preventative programmes.

Unsurprisingly this can be a hard sell with the Treasury. However, as discussed above, a form of double-running already happens – not through the provision of additional funds to boost prevention, but through duplication, with services spending money to
address the same problems. A Total Place-style approach could reduce that duplication and free up resources that might be redirected into prevention, all with only limited additional investment from central government.

To make prevention sustainable, government must also change the way it defines, funds and evaluates ‘preventative spending’ – as the Institute for Government has previously argued. First, prevention must be a cross-government priority, with a settled definition of what constitutes preventative spending. It would also require incorporating prevention into the government’s performance framework, expected to be released alongside the 2025 autumn budget, to track progress and hold departments and the wider public sector to account.

Second, there should be a broad ringfence around preventative funding which would allow local services to spend money on interventions that met the definition of prevention, without central government being too prescriptive over what that would entail.

Third, the government should dedicate more resources to properly evaluating examples of prevention and improve the ways that those learnings are transmitted across the local government sector. For example, the Institute for Government and Centre for Homelessness Impact have recommended that the government creates a national prevention endowment fund for homelessness. Designed to generate long- term savings by funding, testing and scaling promising preventative interventions, the fund would also generate robust data on what works and provide a clear financial case for long-term investment.

The last government established the Office for Local Government (Oflog) in 2023 to “provide authoritative and accessible data and analysis about the performance of local government”. ⁶⁸ Ministry of Housing, Communities and Local Government, ‘Office for Local Government: Understanding and supporting local government performance’, GOV.UK, 4 July 2023, retrieved 26 September 2025, www.gov.uk/government/publications/office-for-local-government-understanding-and-supporting-local-government-performance/office-for-local-government-…  Oflog never achieved those goals, failing to become a trusted partner of local government, and was abolished very soon after the election. The Local Government Association (LGA) also provides some sector-led improvement through initiatives such as its ‘peer challenge programme’. ⁶⁹ Local Government Association, ‘Peer challenges we offer’, Local Government Association, (no date), retrieved 26 September 2025, www.local.gov.uk/our-support/council-assurance-and-peer-challenge/peer-challenges-we-offer  But there is still scope to formalise and expand this offering by, for example, having an independent process of appointing the people who conduct the reviews.

3. The government must co-ordinate its reforms carefully

The government has embarked on a wide-ranging programme of reform across local government – spanning local government reorganisation, finance, children’s social care, SEND services, and homelessness. This is broadly a positive and much-needed shake-up of critical services. However, it will need to carefully co-ordinate these reforms – both with each other, and with wider changes across public services – to ensure they do not block each other’s progress.

For example, health partners who are central to reforming children’s social care and SEND services are themselves in limbo following the abolition of NHS England and the redrawing of integrated care board boundaries, limiting their capacity to plan and work effectively with local authorities.

To improve co-ordination, central government should use revamped missions boards (as discussed later in the Performance Tracker series) to identify where there are trade-offs in its reforms, and properly prioritise. This will require detailed theories of change for how it expects to achieve its reforms, and collaboration with frontline staff on potential pinch points.

Adult social care remains a glaring omission from the current government’s reform agenda, as has been the case for every government this century. By launching an independent commission on adult social care reform – not due to deliver its final report until 2028 – Labour has effectively ruled out large-scale reform during this parliament. The consequences will be felt for years as an ageing population places ever-greater strain on an already broken sector.

Inaction on adult social care is not just neglecting one service, it is actively undermining the government’s goals in others. As it stands, the system is imposing heavy costs on other services by funnelling people into more expensive acute care, such as hospitals, and putting pressure on friends and relatives to leave the workforce to provide unpaid care, potentially leaving them financially vulnerable.