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Leicester’s Reform-led county council has warned it faces a “real crisis” in the form of a £23m black hole in its finances.
So what? It is not alone. Local authorities are staring at a cumulative funding gap of more than £4bn, and a quarter of English councils are on the verge of going bust. This is despite years spent paring back services. The crisis stems from
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a decade of spending cuts;
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the soaring cost of social care; and
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increased demand for homelessness and other services.
Balancing act. English local authorities raise 46% of their funding through council tax. Roughly 32% is from government grants and 22% from business rates.
Austerity. The spending power of local authorities fell by 23% between 2010 and 2019 as Conservative governments subjected grants to steep cuts. Despite increases over the past three years, funding is still well below 2010 levels.
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Levelling down. Grant cuts hit deprived areas particularly hard. Wealthy regions were less affected because they can raise cash more easily through business rates and council tax.
Spending spree. During austerity, English councils bought up offices, shopping centres and other commercial property. These investments were supposed to generate steady streams of revenue to replace lost grant money. Some backfired.
Case in point. Woking effectively went bankrupt in 2023 after a failed development project involving hotels and skyscrapers left it with debts of £1.2bn.
Dominos. Woking is one of eight councils that issued a section 114 notice between 2018 and 2023. These are admissions that local authorities cannot meet their expenditure. Two had been issued in the preceding 30 years.
Meanwhile, councils are spending more on adult and child social care. These services make up 68% of local budgets, up from 53% in 2010. Much of the rise has been driven by the increased fees charged by service providers, which are above inflation.
Other strains. The cost of providing temporary accommodation to homeless people has risen by 77%, and the number of children and young people with high needs jumped from 256,000 in 2016 to 639,000 in 2025.
Knock on effect. Councils are legally obliged to fund social care, homeless services and special education needs. As these expenditures rise, they have been trimming back other services. These include bin collections, libraries and public swimming pools.
What it means. Few people require social care or temporary accommodation. Everyone needs their bins collected and encounters potholes. This is a big problem for Labour.
“The care and homeless systems are completely invisible to the majority of the population,” said Stuart Hoddinott from the Institute for Government. “This means there’s a real anger about the way council tax keeps increasing and services keep getting worse.”
Learning curve. The experience of the Reform council in Kent is instructive. After it took control of the authority in May, the party pledged to slash “wasteful spending” and freeze council tax. They quickly discovered services were already “down to the bare bones”. Now it has confirmed that council tax will rise by 5% next year, the maximum increase allowed.
Labour’s reform. The government is expected to publish new formulas for council grants next week. They will be based on local authorities’ incomes and relative levels of deprivation, diverting money from wealthy areas to boost the funding of poorer regions.
Mixed bag. The Institute for Fiscal Studies estimates that affluent London boroughs such as Camden could see their funding fall by a quarter over the next three years, while the East Midlands will get a boost of 22%. Hoddinott describes the changes as “very welcome” despite being painful for some. He also points out that they will not make more money available.
What’s more… Updating council tax brackets, which are based on 1991 property prices, would have greater impact. But it may also rankle the voters who have paid relatively little until now.