Councils warn of “impossible choices” without urgent action in Spending Review amid concern over potential £8bn funding gap

Councils in England face a funding gap of more than £8 billion by 2028/29 without adequate funding, the Local Government Association has warned in its submission to the Treasury ahead of the Spending Review.

The LGA also said that councils could have a vital role to play in the Government’s reform and growth agenda but would only be able to deliver on this ambition “if they are given the necessary financial headroom”.

The submission sets out that:

• If current cost and demand trends continue, by the end of 2028/29 cost and demand pressures would add £21.4 billion to the cost of delivering council services since 2024/25. This is 29.8% in additional service costs.  
• If these new pressures and funding streams are taken into account, councils would face a £1.9 billion gap in 2025/26 rising to £4.0 billion in 2026/27, £6.0 billion in 2027/28, and £8.4 billion in 2028/29.
• Last year 18 councils required Exceptional Financial Support (EFS) to set their 2024/25 budgets. Of those who responded to an LGA survey, 25% of chief financial officers (CFOs) now say that their council had either applied for EFS to support their 2025/26 budget or that they expected to do so in 2025/26 or 2026/27.

The LGA said its submission “highlights the impact of not investing across the many critical council services that millions of people rely upon everyday such as looking after older and vulnerable adults, ensuring children gain access to vital SEND provision, providing home to school transport and much relied upon temporary accommodation”.

It added: “Without urgent action in the upcoming Spending Review, not only will many councils be left with having to make impossible choices on what desperately needed services they can provide in the future, but the opportunity that this moment presents on boosting growth and reform may be missed.”

The LGA warned that a series of one-year settlements – the settlement for 2025/26 being the seventh in a row – had severely hindered planning and delivery of services.

It described the Government’s commitment to provide councils with three-year settlements over this coming Spending Review period as “encouraging”.

The review will set three-year day-to-day government department budgets between 2026/27 to 2028/29, with the final details of set to be announced by the Chancellor of the Exchequer on 11 June.

The LGA warned, however, about new costs associated with the employer National Insurance Contribution changes, which it claimed have not been fully compensated for by government, alongside demographic change, inflation, and unfunded rises to the National Living Wage, are also exacerbating the challenges faced.

Cllr Louise Gittins, Chair of the Local Government Association, said: “Councils hold the key to public sector reform which is a clear ambition of government. As leaders of their communities and major local employers, they must play a critical role in promoting sustainable and inclusive growth.

“We know that there are huge financial challenges ahead for government. However sufficiently funding councils in the Spending Review would enable them to fully play their part in leading local growth priorities and unlock the full potential of their local people, businesses and places.

“Local government has made huge savings and efficiencies over the past decade and continues to innovate and transform services to get the best for residents and provide greater value for money.   However, without adequate investment now we risk not being able to deliver crucial services that so many depend upon and our desire to help government fulfil its ambitions for the future are severely hindered.”