Background to the report

Local authorities in England deliver essential services to residents, including a broad range of services available to all residents, and targeted services for those most in need of support. They fund their day-to-day services from a range of sources, including council tax, government grants, and sales, fees and charges.

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The Ministry of Housing, Communities & Local Government, (MHCLG) is responsible for the accountability framework for local government and distributes core funding to local authorities. It leads on oversight of financial risk in individual local authorities and the system overall while responsibility for the services local authorities deliver is spread across government departments.

Each department must establish its own arrangements to assure itself that services remain sustainable and that statutory responsibilities are being met. These departments are also responsible for working with MHCLG to ensure it has the right information on services to support decision-making at major fiscal events. HM Treasury allocates and controls public spending, including through spending reviews which set spending limits for departments.

Scope of the report

This report focuses on MHCLG as the department responsible for the framework within which local authorities operate, and provides transparency over the current position of local government finances. By examining the current finance system and context for local government finances, we aim to help inform MHCLG’s consideration of future reforms.

We considered:

  • the context of local government finances in 2024
  • service and financial pressures
  • the government’s approach to local government financial sustainability

Video summary

Vicky Davis, the report’s director, summarises our findings.

Conclusions

Funding for local government has increased in recent years, reversing the long-term downward trend of the previous decade. However, while real terms funding has grown by 4% between 2015-16 and 2023-24, it has not kept pace with population growth or the demand for services, the complexity of need, or the cost of delivering services to people most in need of support.

Proposed reforms of the local government finance system have been repeatedly delayed. Some services are showing the strain, and more local authorities are requesting financial support, some due to the increasing costs of delivering essential frontline services such as homelessness and social care. Despite short-term measures to address acute funding shortfalls, there has been insufficient action to address the systemic weaknesses in local government financial sustainability.

As the government turns its attention to local government reforms, it is essential that this is part of a whole-system, cross-government approach to ensure local authorities are financially sustainable and can continue to provide essential services. This approach needs to ensure effective local accountability for the service and financial performance of each local authority, including robust independent assurance.

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Publication details

Press release

View press release (28 Feb 2025)

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