The 2018 National Audit Office report - The Sustainability of Local Authority Finances - provides an excellent if depressing introduction to this subject. Its key points are:
- Government funding for local authorities has fallen by an estimated 49.1% in real terms from 2010-11 to 2017-18. This equates to a 28.6% real-terms reduction in ‘spending power’ (government funding and council tax).
- Alongside reductions in funding, local authorities have had to deal with growth in demand for key services, as well as absorbing other cost pressures. Demand has increased for homelessness services and adult and children’s social care.
- From 2010-11 to 2016-17 the number of households assessed as homeless and entitled to temporary accommodation under the statutory homeless duty increased by 33.9%; the number of looked-after children grew by 10.9%; and the estimated number of people in need of care aged 65 and over increased by 14.3%. Local authorities have also faced other cost pressures, such as higher national insurance contributions, the apprenticeship levy and the National Living Wage
- Spending on planning and development fell by 52.8% in real terms, with spending on housing services and highways and transport falling by 45.6% and 37.1% respectively. Spending on cultural and related services fell by 34.9% (paragraphs 2.2 to 2.3 and Figure 7).
- Compared with the situation described in our 2014 report, the financial position of the sector has worsened markedly, particularly for authorities with social care responsibilities. We noted in 2014 that the sector had coped well financially with funding reductions, but our current work has identified signs of real financial pressure. A growing number of single-tier and county authorities have not managed within their service budgets and have relied on reserves to balance their books. These trends are not financially sustainable over the medium term .
- The government does not have a long-term funding plan for local authorities.
The problem came into sharp focus during the 2020 COVID-19 pandemic when it became clear that local authorities did not have the resources they needed to respond to so many concurrent challenges. One report noted that "even with a rise of nearly 3.99 per cent every year to individual bills - just below the maximum permitted by central government - Liverpool council has 63 per cent less to spend annually than it did in 2010".