Without a long-term solution for the sustainability of local authorities, councils are struggling to maintain service demand and rising costs.
Simon Christian, Director, Public Services Consulting, discusses our latest research that highlights the significant pressures facing local authorities across the country, calling for urgent action to ensure their financial stability and maintain vital community services.
Over one in five councils in England will be at risk of financial failure without additional income or further spending cuts.
Councils in the North (30%) are twice as likely to be ‘at risk’ compared to those in the South (17%) and London (15%).
In five years, the number of councils at risk increases to 41%.
Local authorities across the UK are facing significant challenges. With the last Budget offering no respite and the lack of any long-term solution for the sector's sustainability, councils need to redouble their efforts to keep their heads above water. Our latest research has highlighted the significant pressures the sector is facing.
Over the five-year period from 2018-19 to 2022-23, core spending power has only increased by 4% nationally, while council spending has increased by double that figure at 8%. The pressures on demand-led services such as social care, driven by population growth and an ageing demographic, have further increased the pressure on council spending.
All regions have experienced an increase in the cost of social care, with the North seeing the highest increase of 15% compared to 13% in the Midlands, 12% in the South, and 6% in London. Adult social care has experienced a real-term cost increase of 9% over the same period, with Yorkshire & Humber and the South East seeing the highest increases of 14% and 12%, respectively. Meanwhile, children's social care has experienced an even more significant real-term cost increase of 18%, with the North and Midlands seeing the highest increase of 22%.
With spending power not keeping pace with demand and costs increasing in key front-line services such as social care, many councils have needed to divert funding from other areas. This has led to cuts being made to spend on discretionary services that have a direct impact on local communities and quality of life, such as libraries, street cleaning, and maintaining civic spaces such as parks and playgrounds.
Many councils are having to bridge the gap between available spending power and increasing demand by turning to their reserves. However, the financial safety net of £23 billion in reserves held collectively by local authorities in England is not evenly distributed. The councils most at risk of financial failure often have the least access to these reserves, exacerbating the risk of financial collapse and the subsequent impact on local communities.
By the end of the year, over one in five councils in England will be at risk of financial failure without additional income or further spending cuts. Metropolitan Boroughs and Unitary authorities are the most at risk, with Metropolitan Boroughs having the highest risk of failure at 39%, followed by Unitary authorities at 42%. By 2028/29, our research projects that two in five councils (41%) will be at risk of financial failure. The North East (58%) and Yorkshire and The Humber (57%) will have the highest percentages of authorities at risk, while the East of England (30%) and South East (34%) will have the lowest percentages.
It is clear that local authorities are facing challenges on almost every front, and urgent action is needed to address the issues highlighted in our research. Without a long-term solution for the sector's sustainability, many councils are at risk of financial failure, which will have a detrimental impact on local communities and quality of life. But what can local councils do now to try and overcome these challenges?
Councils across the UK face a pressing need for transformation and cost reduction to ensure a sustainable future. Councils must make active interventions to manage demand and reduce their cost base, and investing in change programmes is crucial to achieving these goals.
These investments may include long-term resources, short-term capacity boosts, new technology, or project management resources. Our research shows that councils that invest in robust change programmes achieve an average return-on-investment ratio of between 3 and 5:1.
Several councils have already seen the benefits of such investments. Cheshire West & Chester spent £14.5 million to achieve savings of £49.3 million over two years, resulting in an ROI of 3:1. Plymouth City Council allocated £14.7 million to a transformation initiative, which yielded £54.3 million in gross benefits over three years, achieving an ROI of 4:1. Somerset Council invested £7 million over two years in a transformation project focused on Adult Social Care, delivering recurring savings of £14.2 million per year and achieving an ROI of 4:1 (with the potential for an increase to £17.2 million).
The type of investment needed will vary depending on local context. For example, authorities with a shorter window to deliver financial savings may need to design a centrally led recovery programme with tight controls, which requires significant dedicated capacity.
In cases where capacity or capabilities are lacking, councils may need to invest in new skillsets or capacity or bring in short-term support from the private sector. The type of change initiative will also drive different types of investment, whether in digital or assets.
Investing in change programmes is crucial for councils' future success. By making active interventions, councils can reduce their cost base and manage demand, achieving a more financially sustainable future. Investing in long-term resources, short-term capacity boosts, new technology, or project management resources can help councils achieve their goals and achieve a return-on-investment ratio of between 3 and 5:1.
By working with experts in the field, councils can tailor their investment strategies to their local context, enabling them to become masters of their own destiny and secure a sustainable future for their communities.
"At Grant Thornton, we are working with councils across the UK to help them achieve a more financially sustainable future. These include Hillingdon on zero-based budgeting, Stoke-on-Trent on transformation, and North Lanarkshire on delivery model options appraisal. By investing in change programmes tailored to their local context, councils can become masters of their own destiny, enabling them to enact change, achieve savings, and secure a sustainable future for their communities."
Simon Christian, Director, Public Services Consulting
In 2020, Stoke-on-Trent City Council needed a strategic transformation partner to evaluate, and produce proposals, for service provision in one of England’s most deprived areas.
We explored various transformation options, how they would add to a financially sustainable operating model, and advised on a council-wide transformation programme and governance.
We supported the council to identify £22 million net savings, and produced a roadmap for change highlighting accountability, dependencies and a prioritised sequence of activity.
Grant Thornton UK LLP's recent research reveals that disparities in council resilience across the country are being intensified by a combination of deprivation, reserve levels, and economic output within the local government funding system.
Invest in change to achieve a sustainable future
Consider different investment strategies for different local contexts