Financial cliff-edge for hundreds of councils looms in 2026 – where is the Govt’s response?

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The end is looming for the short-term workaround allowing councils to balance their books, with no proposed solution in sight. A new report from the Public Accounts Committee (PAC) is warning that the lack of a government plan for under-pressure local authorities to achieve a sustainable financial position is leaving hundreds of councils in a financially precarious position. 

By the end of 2027-28, councils’ overspending on special educational needs and disabilities (SEND)-related budgets could be between £2.9bn-£3.9bn per year. Since 2021, government has allowed councils to exclude these deficits from their main budgets, under the ‘statutory override’. This is only in place until March 2026. While government has now indicated that it will bring forward further plans for SEND reform in a white paper on schools in autumn 2025, the PAC previously asked government to develop a fair and appropriate solution for when the override ends, and to urgently set out its plans by March 2025. No solution had yet been brought forward at the time of this report. 

The PAC is also warning of the potential impact on local government of the April 2025 increase in the NIC employer rate, and reduction in thresholds at which employers start paying NICs on employee earnings. The report finds that, unacceptably, government undertook no assessment of the indirect costs to councils. These increases will inevitably have implications, particularly for small charitable organisations, and knock-on effects to the markets, such as in Adult Social Care - which may result in private providers passing on cost increases to local authorities, or handing back contracts. The report calls for a review of the NICS increase, and for government to report back to the PAC with its findings. 

The report highlights the fact that immediate financial pressures are holding authorities back from being able to invest in prevention. Councils are spending more on late intervention in children's social care services (£12.1bn in 2023-24), while the amount invested in early support (£2.8 billion) has gone down at the same time as there are more children entering the care system. The current picture is seeing decreases in spend on children's social care prevention, while more children are entering the care system. The PAC is calling on government to articulate how greater investment in prevention can be supported. 

There are further warnings around the risks inherent in the government’s huge reform agenda for local government. With overhauls planned in areas including local audit, local finance, SEND and children’s social care, there is significant uncertainty around how these will be implemented. The inquiry found that local authorities may not have capacity to plan for and implement such wholesale changes at once, and plans for adult social care may need to be adapted once the independent Casey Commission reports back in 2028.   

Chair comment 

Sir Geoffrey Clifton-Brown MP, Chair of the Committee, said:  

“Our inquiry heard that the government is concerned about local authority finances. But the lack of urgent action to come forward with a plan to address the fast-approaching cliff edge for under-pressure authorities would seem to suggest it is comfortable with the current state of affairs as normalised background noise. Alarmingly, scrutiny of council finances can now provoke a sense of déjà vu, with the same unfixed issues seen over and over. We would urge the government to use the funding announced in this spending review as a starting point for the paradigm shift required. 

“However, even with concrete measures to put councils back on a proper long-term sustainable footing, once again the government seems not to have taken a holistic view of the butterfly effect of its other policies. To introduce major changes to national insurance without taking into account the likely effect on an already tottering local government sector is a major misstep. Similarly, aspirations for wide-ranging reforms seem to be unengaged with a reality in which local authorities do not have good and strong capacity to fundamentally change the way they work.  

“Our report gives a wide overview of the various and severe challenges that local government face – for the sake of everyone who relies on local authorities’ services, we hope decision-makers begin to take a similar overview in how policy is delivered.” 

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