Financial resilience in local government is more than a matter of sound budgeting, it is a multidimensional approach that enables local authorities to withstand, adapt to, and recover from economic, social, and environmental shocks. In an era defined by global uncertainty, resource volatility and rising expectations, the ability for local councils to remain financially viable determines not only their operational stability but also the wellbeing of the communities they serve.

Local Government Financial Statistics
  • Various measures have been adopted to calculate and report on the predicted funding shortfalls across the UK.
  • Across England, Wales and Scotland Unison reports the predicted funding gap for 2025/26 to be £4.3bn, rising to £8.5bn in 2026/27. Across England alone the predicted gap is £3.4bn, rising to £6.9bn. These figures far outstrip the estimate made by the Local Government Association (LGA) in June, which were compiled using modelling assumptions rather than extracting each council’s predicted funding gap.
  • Adopting Unisons model the predicted funding gaps across individual councils varies considerably, with Hampshire council having the largest predicted funding gap of £132m and Eastleigh Borough Council having the largest funding gap as a proportion of net revenue, of 37.2%.
  • The National Audit Office reported that while core funding has increased modestly, in real terms by around 4% from 2015/16 to 2023/24, it has not kept pace with inflation, population growth and service complexity.
  • Funding gaps are driven by inflation, wage pressures and rising service demand, especially in adult social care, children’s services and housing. The District Council’s Network reported the total district council spending on temporary accommodation rocketed by 228% in just five years, from £66m in 2017/18 to £216m in 2022/23.
  • Last year, 18 councils required Exceptional Financial Support (EFS) to set their 2024/25 budgets, a January 2025 survey indicated that 25% of Chief Financial Officers said their council had either applied for EFS support in their 2025/26 budget or likely to do so in the next two years.
  • Councils are reliant on an array of income-raising measures, including increasing council tax, business rates, fees/charges and borrowing, along with increasing commercial activity.
Financial Resilience Challenges

The financial resilience challenges facing councils have far reaching implications for service delivery, governance and community outcomes.

  • Reduced Service Quality and Availability, with cuts to non-statutory services and severe strain on statutory services like adult and children’s social care, with reduced care packages and increased safeguarding risks.
  • Increased Risk of Financial Failure, more councils approaching the point of issuing section 114 notices, leading to government intervention, loss of control and emergency budget cuts.
  • Workforce Instability, recruitment and retention challenges are worsening, especially in social work, planning and environmental health. Staff burnout and turnover is rising, with greater uncertainty around reorganisation and service cuts.
  • Housing and Homelessness Crisis, rising costs of temporary housing and lack of affordable housing are pushing councils to the brink. This leads to increased rough sleeping, family displacement and legal challenges.
  • Over reliance on Reserves and Short Term Fixes, councils are using reserves to plug budget gaps, which is unsustainable and leaves them vulnerable to future shocks. Short termism undermines strategic planning and investment in prevention.
  • Erosion of Public Trust, service cuts, council tax rises and financial instability can lead to public dissatisfaction and reduced engagement.
  • Stalled Innovation and Transformation, financial uncertainty limits council’s ability to invest in digital transformation, climate action and community wealth building. Long term projects are delayed or cancelled, affecting local growth and resilience.
Key Takeaways

A combination of long-term underfunding and an unprecedented demand on services have left councils vulnerable, with structural deficits, unsustainable spending trajectories and a growing number of councils requesting exceptional financial support.

The local government reorganisation programme is having a significant impact on councils, particularly two-tier areas, with over a third of councils reporting the announcements have negatively impacted on their ability to set budgets and over half of district councils citing disruption due to uncertainty around future structure and responsibilities.

As the sector navigates a period of unprecedented change, poor financial decision making and resilience could lead to widespread financial collapse.

Key Prompts for Audit Committees
  • Understanding the financial position: How does the council’s current financial position compare to previous years. What are the key risks to financial stability over the medium term. Are reserves at a sustainable level and are they being used strategically.
  • Compliance with the CIPFA Financial Management Code: Has the council completed a self-assessment against the code. What areas of improvement were identified and what actions are being taken. How is the Code being embedded across departments and leadership levels.
  • Scenario Planning and Stress Testing: What financial stress testing has been undertaken to assess resilience to future shocks (inflation and demand surges). Are there contingency plans in place for worst-case scenarios.
  • Governance and oversight: How effective is the governance framework in supporting financial decision making. Are financial risks clearly reported and understood by members. How is the Audit Committee assured that financial controls are operating effectively.
How TIAA Internal Audit Supports Financial Resilience
  • Assurance on Financial Controls:
    – Evaluates the effectiveness of financial controls, including budget monitoring, procurement, and treasury management.
    – Identifies weaknesses that could lead to financial mismanagement or inefficiencies.
  • Compliance with the CIPFA Financial Management Code:
    – Assesses whether the council is meeting the standards set out in the CIPFA Code.
    – Supports self-assessment processes and highlights areas for improvement.
  • Risk Management and Early Warning:
    – Reviews the council’s risk management framework to ensure financial risks are identified, assessed, and mitigated.
    – Provides early warnings on emerging risks such as inflationary pressures, funding gaps, or service demand surges.
  • Value for Money (VfM) Reviews:
    – Conducts VfM audits to assess whether resources are being used efficiently, effectively, and economically.
    – Supports transformation initiatives and service redesign by identifying cost-saving opportunities.
  • Governance and Decision-Making:
    – Evaluates the robustness of governance structures that underpin financial decision-making.
    – Ensures that financial decisions are transparent, well-documented, and aligned with strategic priorities.
  • Support During Financial Stress:
    – Provides real-time assurance during periods of financial stress or crisis.
    – Assists in evaluating emergency financial measures and their long-term impact.
  • Audit Committee Engagement:
    – Works closely with the Audit Committee to ensure financial resilience is a standing agenda item.
    – Provides thematic reports and insights to inform strategic oversight.
  • Monitoring of Improvement Plans:
    – Tracks progress against financial improvement plans, especially following qualified audit opinions or Ofsted findings.
    – Ensures accountability and timely delivery of corrective actions.

Councils-on-the-brink-with-regional-appendix.pdf

Spending Review 2025: Briefing 12 June 2025 | Local Government Association

Spending Review 2025 | Local Government Association

‘Severe and worsening’ pressures facing council finances | London Councils – Home

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