Local Government Financial Sustainability

Public Accounts Committee Closed Inquiry
Opened: 15 Jan 2025 Closed: 21 Aug 2025 Parliament page
Local government is under extreme financial pressure. The National Audit Office found in 2021 that English local authorities had lost around a quarter of their spending power over the preceding decade, with government-funded spending power over 50% lower. While a £4.5bn funding increase was provided to local authorities in 2024-25 … Read more
10 Recommendations
21 Conclusions
1 Report
1 Oral session
5 Letters
1 Event
Activity timeline 9 events
27 Apr
2026
Correspondence
8 Jan
2026
Correspondence
18 Sep
2025
Report published
4 Sep
2025
Correspondence
7 Jul
2025
Correspondence
18 Jun
2025
Report published
24 Apr
2025
Correspondence
3 Apr
2025
Oral evidence
3 Apr
2025
Formal meeting (oral evidence session) · The Thatcher Room, Portcullis House
Oral evidence sessions 1 session
3 Apr 2025
View on parliament.uk
Conrad Smewing · HM Treasury Councillor Peter Marland · Local Government Association Councillor Peter Marland · Milton Keynes City Council Iain Murray · Chartered Insititute of Public Finance and Accountancy (CIPFA) Nico Heslop · Ministry of Housing, Communities and Local Government Professor Tony Travers · The LSE School of Public Policy Sarah Healey · Department for Digital, Culture, Media and Sport Will Garton · Ministry of Housing, Communities and Local Government Will Garton · Department for Levelling Up, Housing and Communities
Title HC No. Published Items Response
31st Report - Local Government Financial Sustainability HC 647 18 Jun 2025 31 Responded
Recommendations & Conclusions
31 results
2 Conclusion Accepted
31st Report - Local Government Fin…
Implement plan to simplify and consolidate cross-government grant funding for local authorities by autumn 2025.
Local authorities’ ability to improve outcomes for people is undermined by an overly complex funding system, with competing policy demands and funding streams. Local authorities receive funding through the annual local government finance settlement, which includes formula-based grants and locally … Read more
Government Response
The government agreed and outlined specific plans to simplify local authority funding through the Fair Funding Review 2.0 and Local Government Outcomes Framework, including consolidating grants into large ringfenced funds for key areas and rolling suitable grants into the Revenue Support Grant, with further consolidation planned for future years.
HM Treasury
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3 Conclusion Accepted
31st Report - Local Government Fin…
Provide details on how local government finance settlement will support greater investment in prevention.
Significant financial pressures are constraining local authorities’ ability to invest in prevention, leading to less early intervention services which could help manage demand. Preventative services can be used to manage demand by helping to stop, delay or reduce the extent … Read more
Government Response
The government agreed, stating the recommendation was implemented via an HM Treasury letter, and outlined specific investments from Spending Review 2025 to support prevention, including over £500 million for children's social care, £842 million annually for a new Crisis and Resilience Fund, and significant funding for homelessness prevention and affordable homes. Further details will follow in the provisional Local Government Finance Settlement.
HM Treasury
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4 Conclusion Accepted
31st Report - Local Government Fin…
Conduct post-implementation review of National Insurance Contributions increase impact on local government services.
Neither MHCLG nor HM Treasury have assessed the impact that increases in national insurance contributions (NICs) will have on local government services. In April 2025, the NIC employer rate increased from 13.8% to 15% whilst the threshold at which employers … Read more
Government Response
The government agreed to carry out a post-implementation review of the increase in National Insurance Contributions, focusing on impacts on third-party providers, care markets, and local government services, and will continue monitoring pressures through ongoing stakeholder engagement.
HM Treasury
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5 Conclusion Accepted
31st Report - Local Government Fin…
Set out solution for local authority financial sustainability before statutory override ends in March 2026.
Financial pressures have led to short-term and unsustainable approaches to managing overspends in local government. In 2020–21, MHCLG introduced the Exceptional Financial Support (EFS) framework to help local authorities that are in financial trouble. Since then, 42 local authorities have … Read more
Government Response
The government agreed and committed to setting out a solution for local authority financial sustainability, including a White Paper on SEND reform in Autumn 2025, a phased transition to a new SEND system, and an extension of the Dedicated Schools Grant Statutory Override until 2027-28, with further details on deficit management at the provisional Local Government Finance Settlement.
HM Treasury
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6 Recommendation Rejected
31st Report - Local Government Fin…
Set out detailed timetable of local government finance reforms, implementation plans, and transitional arrangements.
There is significant uncertainty around how the proposed local government finance reforms and reorganisation will be implemented. Long standing plans for funding and service reforms have been delayed several times. The government has now announced a huge reform agenda for … Read more
Government Response
The government rejected the recommendation to review the impact of switching to council tax funding, arguing that council tax is a locally determined and flexible funding stream, and existing mechanisms like the Fair Funding Review 2.0 already address proposals for better accounting for tax generating ability.
HM Treasury
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1 Conclusion Accepted
31st Report - Local Government Fin…
Committee received evidence on local government financial sustainability from diverse stakeholders.
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Housing, Communities and Local Government (MHCLG) and HM Treasury on local government financial sustainability.1 We also heard evidence from Professor Tony … Read more
Government Response
The government stated that MHCLG already ensures value for money through its Local Government Accountability Framework, collects extensive financial data and intelligence, and is implementing reforms like the new Local Government Outcomes Framework from April 2026 to simplify funding and strengthen local audit.
HM Treasury
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7 Conclusion Accepted
31st Report - Local Government Fin…
Significant delays persist in local government external audit assurance, creating information gaps.
Local audit, including reports on value for money arrangements within local authorities, helps to provide transparency and assurance to both central government and taxpayers on local authorities’ plans to achieve effective services. At 31 March 2024 only 25% of local … Read more
Government Response
The government states the recommendation is implemented, outlining its Local Government Accountability Framework and ongoing reforms to oversight. It highlights the recently announced Local Government Outcomes Framework, to be published with the 2026-27 Local Government Finance Settlement and active from April 2026, which will support funding simplification and value for money.
HM Treasury
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8 Conclusion Accepted
31st Report - Local Government Fin…
Increased spending on SEND and temporary accommodation fails to meet people's needs.
Despite increased spending , there are indications that services are not meeting peoples’ needs, such as only 50% of Education, Health and Care (EHC) plans for children and young people being issued within the 20-week statutory limit in 2023.15 MHCLG … Read more
Government Response
The government agrees to address service shortfalls by end of 2025, committing over £2 billion for children's social care reform, a White Paper for SEND system reform in Autumn 2025, and continued £1 billion investment in homelessness services with a new strategy to be published later in 2025.
HM Treasury
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9 Conclusion Accepted
31st Report - Local Government Fin…
MHCLG lacks comprehensive outcomes framework for local government, focusing on specific spending areas.
Councillor Pete Marland and Iain Murray both stressed the importance of focussing on outcomes.18 In response to our question on supporting greater transparency of spend and delivery of outcomes, MHCLG told us that there was significant work under way to … Read more
Government Response
The government states the recommendation is implemented and provides details on the new Local Government Outcomes Framework, announced on 3 July 2025. This framework will be published alongside the 2026-27 Local Government Finance Settlement and will be used from April 2026 to simplify funding by setting 15 priority outcomes for local authorities.
HM Treasury
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10 Conclusion Accepted
31st Report - Local Government Fin…
Local government funding system remains excessively complex, eroding transparency and public trust.
The funding system for local government is extremely complex. The local government finance settlement provides formula-based funding to local authorities, which MHCLG distributes through a combination of formula- based grants, general grants and locally retained business rates. Local authorities also … Read more
Government Response
The government agrees to simplify local government funding by publishing the Fair Funding Review 2.0 consultation, establishing a Local Government Outcomes Framework, and consolidating various grants into larger, more flexible forms, with a target implementation by the end of 2025.
HM Treasury
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11 Conclusion Accepted
31st Report - Local Government Fin…
Single-year finance settlements hinder local authority long-term planning; multi-year committed for 2026–27.
In recent years, government has provided single-year finance settlements, with stakeholders consistently calling for multi-year settlements to aid longer term planning and decision making. Written evidence from Cornwall Council highlighted how single year settlements compound the financial challenges it faces … Read more
Government Response
The government agrees to implement multi-year funding settlements by the end of 2025, detailing actions such as the Fair Funding Review 2.0 consultation, introducing the Local Government Outcomes Framework, and consolidating various grants into the Revenue Support Grant.
HM Treasury
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12 Conclusion Accepted
31st Report - Local Government Fin…
Numerous ring-fenced grants create administrative burden for local authorities, prompting consolidation efforts.
Outside of the finance settlement, local authorities can receive hundreds of different local grants from several government departments. While there is no official count, Councillor Pete Marland suggested that there are around 300 funding streams coming from central government to … Read more
Government Response
The government agrees to simplify local authority funding and reduce the number of grants by the end of 2025, citing the Fair Funding Review 2.0 consultation, plans to roll suitable grants into the Revenue Support Grant, and consolidate adult social care grants as part of the upcoming multi-year Local Government Finance Settlement.
HM Treasury
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13 Conclusion Accepted
31st Report - Local Government Fin…
Lack of joined-up working results in competing funding demands for local authorities.
Many departments rely on local authorities to deliver policy initiatives, although lack of joined-up working has resulted in competing funding demands. Our predecessors warned that competition between the Home Office and local authorities for local accommodation was “driving up prices … Read more
Government Response
The government agrees to improve joined-up working by the end of 2025, explaining how the Fair Funding Review 2.0 consultation and the Local Government Outcomes Framework (active from April 2026) will facilitate better cross-government collaboration and local delivery, alongside continued grant consolidation efforts.
HM Treasury
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14 Conclusion Accepted
31st Report - Local Government Fin…
Spending shifts from preventative to late intervention services, increasing later costs and worsening outcomes.
MHCLG recognises the importance of investing in prevention but also the challenge of funding it when finances are constrained.34 Preventative services help stop, delay or reduce the need for statutory services and can help to deliver better outcomes.35 Over the … Read more
Government Response
The government affirms its commitment to prevention-focused public sector reform, stating the recommendation is implemented and detailing significant investments already made or committed through the 2025 Spending Review, including over £500 million for children's social care, £842 million annually for the Crisis and Resilience Fund, and £100 million for early homelessness interventions.
HM Treasury
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15 Recommendation Accepted
31st Report - Local Government Fin…
HM Treasury implements multi-year settlements to incentivise upstream prevention spending.
HM Treasury told us how the shift to prevention takes time and needed to be done gradually.39 We challenged HM Treasury and MHCLG on how the spending review and local government finance settlement would support this shift and incentivise prevention.40 … Read more
Government Response
The government states the recommendation is already implemented, detailing existing commitments from the 2025 Spending Review, including investments in children’s social care, the Crisis and Resilience Fund, homelessness, and community help partnerships to support a shift towards prevention.
HM Treasury
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16 Conclusion Accepted
31st Report - Local Government Fin…
MHCLG allocates significant grants to enhance children's social care and homelessness prevention.
MHCLG said it had already begun to focus funding on prevention in a number of ways, including the introduction of a new £270 million grant for children’s social care prevention. It had also increased the overall homelessness prevention grant for … Read more
Government Response
The government confirms its commitment to prevention-focused public sector reform, stating the recommendation is implemented and detailing significant investments already made or committed through the 2025 Spending Review in children's social care, crisis support, homelessness, and community partnerships.
HM Treasury
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17 Conclusion Accepted
31st Report - Local Government Fin…
April 2025 employer NICs rise supported by government funding for public sector.
In April 2025 the NIC employer rate increased from 13.8% to 15%, while the threshold at which employers start paying NIC on employees’ earnings reduced from £9,100 to £5,000. HM Treasury told us the aim was to raise more tax … Read more
Government Response
The government commits to conducting a post-implementation review by Autumn 2025 to monitor the impacts of employer NICs changes on local government, addressing the context of the committee's factual statement on NIC increases and government allocations.
HM Treasury
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18 Conclusion Accepted
31st Report - Local Government Fin…
HM Treasury NICs compensation excludes indirect cost increases passed onto public sector.
HM Treasury told us that it calculated the level of compensation for public authorities by apportioning the expected increase in direct NICs between the different work forces within the public sector. We were told that this did not account for … Read more
Government Response
The government commits to conducting a post-implementation review by Autumn 2025 to monitor the impacts of employer NICs changes on local government, thereby implicitly addressing the committee's observations on calculation methods and unaccounted costs.
HM Treasury
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19 Conclusion Accepted
31st Report - Local Government Fin…
MHCLG consulted on NICs allocation for local authorities, noting varied funding practices.
MHCLG told us that it consulted with the sector on how best to allocate the £515 million so that it did not discriminate against local authorities that had chosen to outsource or insource specific services. It went on to say … Read more
Government Response
The government commits to conducting a post-implementation review by Autumn 2025 to monitor employer NICs changes and their impacts, which implicitly addresses the committee's observations about varied local authority funding approaches for NICs.
HM Treasury
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20 Recommendation Accepted
31st Report - Local Government Fin…
Employer NICs and National Living Wage rises create significant cost pressures for care providers.
Written evidence we received from Mencap, a social care provider supporting over 4,000 people with learning difficulties, indicated that the changes to employer NICs coupled with increases in the National Living Wage, could potentially cost it an additional £18 million … Read more
Government Response
The government has allocated £4.7 billion to the public sector and £515 million specifically for local government to manage employer NICs changes, and agrees to conduct a post-implementation review of the NICs increase by Autumn 2025.
HM Treasury
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21 Recommendation Accepted
31st Report - Local Government Fin…
MHCLG and HM Treasury failed to assess NIC changes impact on local government services.
We asked whether an impact assessment had been carried out to consider whether local authorities would be able to fully compensate organisations, particularly smaller charities providing local government services, for the increased NIC costs out of the £515 million.53 MHCLG … Read more
Government Response
The government accepts the implied recommendation to assess the impact of NIC changes on local government services, committing to a post-implementation review by Autumn 2025. They also disagree with the committee's finding that no prior assessment was made.
HM Treasury
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22 Recommendation Accepted
31st Report - Local Government Fin…
LGA estimates over £1 billion NICs funding shortfall, unassessed by MHCLG.
We drew MHCLG’s attention to the Local Government Association’s calculations on the costs to local government of the increases in NICs. These suggest that the direct cost to local government is an estimated £637 million. The LGA also calculated indirect … Read more
Government Response
The government accepts the implied recommendation to assess the impact of NIC changes, committing to a post-implementation review by Autumn 2025 to monitor pressures on local government, while also disagreeing with the committee's finding of no prior assessment of LGA figures.
HM Treasury
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23 Recommendation Accepted
31st Report - Local Government Fin…
Exceptional Financial Support for councils allows capital asset use for revenue, not new funding.
Central government has introduced measures to help local authorities manage budget overspends. In 2020–21, MHCLG introduced the Exceptional Financial Support (EFS) framework to help local authorities that are in financial trouble.57 Since then, 42 local authorities have received over £5 … Read more
Government Response
The government accepts the recommendation to address local authorities' budget overspends, committing to fund and reform the SEND system, publish a White Paper by Autumn 2025, and extend the Dedicated Schools Grant Statutory Override until 2027-28.
HM Treasury
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24 Conclusion Accepted
31st Report - Local Government Fin…
Exceptional Financial Support is no longer exceptional and lacks long-term funding strategy.
Written evidence we received highlighted that EFS was no longer considered exceptional and there were concerns that some local authorities required measures ‘over and above’ the EFS framework, given the scale of their financial distress.64 MHCLG told us it recognised … Read more
Government Response
The government agrees to address local authority funding pressures, committing to reform the SEND system with a White Paper in Autumn 2025 and a phased transition, alongside extending the Dedicated Schools Grant Statutory Override until 2027-28.
HM Treasury
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25 Recommendation Accepted
31st Report - Local Government Fin…
Government has not yet presented a solution for managing post-2026 SEND budget deficits.
Many local authorities have seen rises in Special Educational Needs (SEND) demand, and the NAO has previously reported that 101 local authorities overspent their SEND-related budgets in 2022–23.67 Department for Education (DfE) estimates suggest that by the end of 2027–28, … Read more
Government Response
The government agrees, committing to a phased transition to a new SEND system, extending the statutory override until the end of 2027-28, and promising a White Paper by Autumn 2025 with further details on managing deficits.
HM Treasury
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26 Conclusion Accepted
31st Report - Local Government Fin…
Fundamental reform of the SEND system is essential to address ongoing deficits.
Iain Murray from CIPFA warned that even if these deficits were written off, local authorities would immediately start to accumulate new deficits due to high levels of demand in SEND.71 MHCLG told us that there was huge amounts of work … Read more
Government Response
The government agrees, outlining a phased transition to a new SEND system with a White Paper by Autumn 2025 and an extension of the Dedicated Schools Grant Statutory Override to 2027-28 to help local authorities manage deficits.
HM Treasury
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27 Recommendation Accepted
31st Report - Local Government Fin…
Central government acknowledges outdated local government finance system and plans reforms.
Central government acknowledges the local government finance system is complex and outdated, with long-standing plans for reform not having taken place.75 In autumn 2024 government committed to reforms over the medium term. Alongside confirming the reintroduction of multi-year funding settlements … Read more
Government Response
The government accepts the recommendation to reform the local government finance system, detailing ongoing and planned initiatives like the Fair Funding Review 2.0 consultation, multi-year settlements, and specific strategies for key service areas by the end of 2025.
HM Treasury
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28 Conclusion Accepted
31st Report - Local Government Fin…
MHCLG aims to align local funding with needs but acknowledges reform distribution risks.
We asked MHCLG how its reforms will help councils deal with the immense financial challenges they face. It told us it recognised the problems and, through funding reform, it was seeking to align the way funding is distributed much more … Read more
Government Response
The government agrees, outlining its Fair Funding Review 2.0 consultation to simplify local authority funding, consolidate grants, and confirm new funding for children's social care, adult social care, SEND, and homelessness, with further details expected by the end of 2025.
HM Treasury
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29 Recommendation Accepted
31st Report - Local Government Fin…
MHCLG acknowledges insufficient funding, aiming for efficiency and demand management amid uncertainties.
We challenged MHCLG as to whether its reforms will put local government finance on a sustainable footing. It acknowledged that there was not enough money in the system, so the aim of the reforms was to use the money available … Read more
Government Response
The government accepts the recommendation, outlining plans by end of 2025 as part of the multi-year Local Government Finance Settlement, including the Fair Funding Review 2.0, funding simplification, and reforms for children's social care, adult social care, SEND, and homelessness.
HM Treasury
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30 Recommendation Accepted
31st Report - Local Government Fin…
Multiple complex local government reforms and reorganisation are happening simultaneously.
Given the range of proposed reforms as well as local government reorganisation, we pressed MHCLG on the timing and sequencing. MHCLG responded that “it is all happening at once”.84 It accepted that funding reform plans may need to be adapted … Read more
Government Response
The government accepts the recommendation regarding the timing and sequencing of reforms, detailing ongoing initiatives like the Fair Funding Review 2.0 and multi-year settlements, alongside commitments to reform children's social care, adult social care, SEND, and homelessness by specified dates.
HM Treasury
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31 Conclusion Accepted
31st Report - Local Government Fin…
Local government reforms and reorganisation present opportunities but begin from a fragile financial position.
Written evidence we received from the Chartered Institute of Public Finance and Accountancy pointed out that funding reform and local government reorganisation were opportunities to improve sustainability in the sector, but that local government approached these extensive reforms from a … Read more
Government Response
The government agrees to address the need for funding reform and sustainability, highlighting its Fair Funding Review 2.0 consultation, plans to simplify and consolidate local authority grants, and new spending commitments for key services including children's and adult social care, and SEND.
HM Treasury
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Government Response AI assessment · 31 of 10 classified
Accepted 30
Rejected 1
Total 10 recs + 21 conclusions
Correspondence 5 letters
27 Apr 2026 To committee Letter from The Permanent Secretary to the Ministry of Housing, Communities and Local Government relating to Treasury Minutes progress report, 9 February 2026
Parliament page
8 Jan 2026 To committee Letter from the Permanent Secretary at the Ministry for Housing, Communities & Local Government relating to Local Government Financial Sustainability, 16 December 2025
Parliament page
4 Sep 2025 To committee Letter from the Permanent Secretary of the HM Treasury relating to the response to Recommendation 3 of the 31st Report of Session 2024-25, Local Government Financial Sustainability, 07 August 2025
Parliament page
7 Jul 2025 To committee Letter from the Permanent Secretary of the Ministry of Housing, Communities and Local Government relating to the launch of the Local Government Outcomes Framework, 03 July 2025
Parliament page
24 Apr 2025 To committee Letter from the Permanent Secretary of Ministry of Housing, Communities and Local Government relating to the oral evidence session held on 03 April 2025 on Local Government Financial Sustainability, 16 April 2025
Parliament page