Written evidence submitted by UNISON [FSF 031]

 

 

This submission contains responses to the following inquiry questions:

 

The submission also contains UNISON’s research on the local government funding gap (Councils on the Brink – Appendix A) and UNISON’s view on the current situation around local government funding.

 

Introduction

UNISON is the UK's largest trade union with 1.3 million members, with around 600,000 of those members working across local government services. We welcome the opportunity to submit a response to the select committee’s inquiry on the funding and sustainability of local government finance in England. UNISON’s perspective comes from the democratic involvement of thousands of members from across England, many of whom are working on the frontline in local authorities.

 

For too long there has been a crisis within local government funding. Councils across England are facing significant shortfalls after years of austerity, inflation pressures, and the ongoing pressures related to mismanagement of the economy by the previous government. Councils are being forced to result to resort to ever more desperate measures just to keep services going, while the cost-of-living crisis means increased demand for support and services. UNISON research published in September 2024 revealed that Councils across have a collective hole in their finances amounting to £3.4bn for 2025/26, which will have risen to £6.9bn by 2026/27. These figures far outstrip the estimate made by the Local Government Association (LGA) in June 2024, which suggested councils in England face a funding gap of £2.3bn in 2025/26, rising to £6.2bn by 2026/27. The LGA’s figures were compiled using modelling assumptions rather than extracting each council’s predicted funding gap. The figures from UNISON measure how far short local authorities are from balancing their budgets.

 

Councils are required by law to set a balanced budget, which means they must take steps to deal with any funding gaps, a task that’s becoming increasingly difficult. Many councils have been forced to announce job cuts, reduce services, and increase charges to residents and businesses. They have also had to use their own cash reserves or sell assets. In the summer of 2024, UNISON revealed the toll this funding gap has already taken on a range of council services. Between 2010 and 2023, at least 1,243 council-run youth centres were closed and 1,168 council-run children’s centres were shut. There has also been a significant decline in the number of council-run libraries (1,376 fewer) and public toilets (a drop of 1,629) over the same period. In a paper released just before the 2024 general election, the Institute for Fiscal Studies reported that between 2010-11 and 2024-25, councils' overall core funding fell by 9% in real terms, despite significant increases in demand for services. During the financial year 2024/25 alone, 19 local councils in England were granted “capitalisation directions”, where local government financial rules were relaxed so they could make use of capital budgets to help support day-to-day spending. Hampshire County Council has proposed withdrawing all spending on homelessness support services across the county from March 2025. In March of 2024, Britain’s largest authority, Birmingham City Council, approved one of the biggest local government cuts packages in history – including plans to scrap up to 600 jobs, cut social care and children’s services funding, and reduce waste collections. Middlesbrough Council has set aside £3.6m for future redundancies as it tries to save a further £21m by 2026/27. East Riding Council has told staff it could scrap any post that has been vacant for more than six months.

 

Is the local government finance system fit for purpose? If not, what needs to change?

No, the system of local government finance as currently constituted is no longer fit for purpose. Over a decade of austerity combined with chronic under-funding has led to a precarious financial condition in local authorities, unable as they are to meet the increasingly complex growth in the needs of their communities. Councils have been under unprecedented pressures for some time, having to make emergency cuts, close key community facilities, and sell precious assets, with the resulting funding used for in day-to-day operations. Such measures are not only unsustainable but have directly impacted the workforce with significant reductions in staff numbers and worsening working conditions for those who remain. Job losses have consequently left services understaffed, increasing workloads for remaining employees and further contributing to the stress, burnout, and declining morale that many are suffering. Many council workers, already in undervalued roles, are now struggling with the pressures of delivering more services with fewer resources, often in high-deprivation areas where demand is most significant.

 

The current system's reliance on outdated and inequitable funding mechanisms further exacerbates these challenges. It is unacceptable that council tax bands in England are still based on property values from 1991, hitting low-income households disproportionately hard, while the business rates system penalises physical businesses and allows online companies to thrive at their expense. This regressive approach fails to address the structural inequalities in funding, leaving councils in poorer areas less able to raise the revenue they need to meet local demand. Single-year funding settlements, together with reliance on temporary grants, undermine the ability of councils to plan for the future and invest in workforce development. Without long-term stability in funding, councils make decisions that are short-sighted and the scaling back of non-statutory services that support communities.

 

Externally, the loss of experienced staff and failure to invest in recruitment or retention strategies have resulted in gaps in essential skills and institutional knowledge. Remaining employees frequently take on additional responsibilities, often outside their job descriptions, in order to maintain vital services. A culture of overwork and under-resourcing has been developed in which workers are trying to deliver quality services against a mounting challenge. This is particularly true in major areas of social care, housing, and community support, where demand has risen astronomically while budgets are cut. Workforce well-being has been disregarded: poor mental health is left unsupported, and career development is stunted, leading to pay stagnation that falls ever further behind the rising demands placed on staff.

 

Some councils have relied on reserves to temporarily mitigate the impact of funding shortfalls, but this is not a sustainable solution. Reserves are finite, and when depleted, they leave councils even more vulnerable to financial crises. It is of great concern that over 42% of councils drew on their reserves in both 2022/23 and 2023/24, clear evidence that the current system is not providing stability. The inability to offer secure, well-funded services also erodes public trust in local government, further undermining morale among council workers who feel the weight of public dissatisfaction.

 

The last significant reform, introducing 50% local retention of business rates in 2013/14, has failed to address the growing mismatch between funding allocations and actual local needs, with the IFS indicating only 39 of 150 areas receiving funding within 5% of their estimated requirements. The system is opaque, overly complex, and unfit to support councils in becoming more self-sufficient or innovative.

 

Reform is urgently needed to address these systemic issues. In the short term, the government must intervene to bolster council finances and align funding to areas with most needs. Councils need greater flexibility to raise revenue and invest in their workforce, ensuring that employees have the tools, training, and support necessary to deliver high-quality services. Longer term, the funding system must be overhauled to create a fair, transparent, and progressive model that supports councils in addressing local needs while fostering financial resilience. Without these changes, the workforce will continue to bear the brunt of an unfit system, and councils will remain unable to meet their obligations to the communities they serve.

 

Does the local government finance system match funding to the relative needs of local authorities?

No. The funding mechanism disproportionately disadvantages councils in more deprived areas. Affluent councils are better able to generate income, while councils in deprived areas, already facing higher demand for services, see their funding stagnate or decrease. This exacerbates regional inequalities and undermines the principle of equitable support based on local needs.

 

How will this be affected by the introduction of multi-year funding settlements?

While multi-year settlements are to be welcomed, they do not address the fundamental issue of inadequate funding. Without a significant increase in resources, multi-year settlements risk locking councils into a cycle of underfunded service provision. They must also be accompanied by a fairer distribution mechanism to ensure resources are allocated based on need rather than income-generation capacity.

 

Have Government interventions in response to local authorities being in financial distress helped those authorities to stabilise their finances and avoid further financial distress?

Government interventions, such as appointing external commissioners, have focused on financial stabilisation without engaging meaningfully with local communities or the workforce. The current statutory regime is inadequate, as it addresses financial distress as a crisis to be managed rather than a systemic issue to be resolved.

 

UNISON has direct experience of Government interventions in response to local authorities being in financial response in places like Nottingham, Slough, Woking, Croydon and Birmingham.  Whilst external commissioners are tasked with helping to stabilise a council’s finances we have been struck by how little engagement there has been by them with our local union representatives.  Our local branches are able to offer a unique perspective as both local workers and members of the local community. We therefore believe that where commissioners are called in to run a council that they are mandated to engage with local trade unions, so that their perspective is taken on board. 

 

What should a broader support system for local authorities in financial distress look like?

A more effective system should include:

Local workforce representatives offer unique insights as both employees and residents. Their input is vital to ensuring interventions are practical and sustainable.

Establishment of a framework to identify early warning signs of financial distress and provide targeted support before a crisis occurs, with a focus on maintaining staff levels and local services.

Provide councils with resources and expertise to improve financial management, invest in sustainable initiatives, and reduce dependency on short-term fixes like borrowing or asset sales.

Ensure interventions are guided by principles of equality and inclusion, particularly for marginalised communities and employees. Any system for managing councils in financial distress must take into consideration the experiences of diverse communities and the staff that serve them.

 

What parts of the local government finance system are working well and should be built on further?

While the local government finance system is deeply flawed, there are some aspects that provide a basis for building a fairer and more effective framework. These include:

Although council tax and business rates are currently inequitable and place an unfair burden on deprived areas, the concept of councils having a degree of autonomy in generating revenue is a strength. Local governments are closest to their communities and are best placed to respond to their needs. To improve this system, council tax must be reformed to make it more progressive and fair, reducing the disproportionate burden on low-income households, and business rates need to be restructured to avoid penalising areas with fewer businesses or declining high streets.

Recent one-off funding boosts, such as those in response to the COVID-19 pandemic or the £600m uplift in 2024/25, demonstrate that central government can intervene to address local funding shortfalls. While these interventions are piecemeal, they show a recognition of the need to provide targeted support in times of crisis. UNISON would argue for this to be developed into a long-term, sustainable funding mechanism.

Multi-year settlements represent a step in the right direction. They provide councils with greater stability and the ability to plan for the medium and long term, enabling better financial decision-making. To build on this, multi-year settlements must be adequately funded and rooted in a fair distribution mechanism that prioritises need.

The COVID-19 pandemic highlighted the critical role of local government services, from public health to social care and community support. This has led to greater public awareness of the importance of well-funded local councils. Building on this renewed recognition, central government must invest in these services to ensure they remain resilient and capable of serving communities effectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix A – Councils on the Brink

 

The funding challenges facing local councils across England, Wales and Scotland are getting considerably worse, new research by UNISON shows.   Councils across these three nations face a collective funding shortfall of £4.3bn next year (2025/26), and the cumulative figure will have risen to £8.5bn by 2026/27, according to a combination of freedom of information requests and searches of local authority financial strategy papers. Across England alone, the predicted funding gap for 2025/26 is £3.4bn, which will have risen to £6.9bn by 2026/27. These figures far outstrip the estimate made by the Local Government Association (LGA) in June. This suggested councils in England face a funding gap of £2.3bn in 2025/26, rising to £6.2bn by 2026/27. The LGA’s figures were compiled using modelling assumptions rather than extracting each council’s predicted funding gap. The figures from UNISON measure how far short local authorities are from balancing their budgets. Councils are required by law to set a balanced budget, which means they must take steps to deal with any funding gaps, a task that’s becoming increasingly difficult. Many councils have been forced to announce job cuts, reduce services, and increase charges to residents and businesses. They have also had to use their own cash reserves or sell assets. Earlier this summer, UNISON revealed the toll this funding gap has already taken on a range of council services. Between 2010 and 2023, at least 1,243 council-run youth centres were closed and 1,168 council-run children’s centres were shut. There has also been a significant decline in the number of council-run libraries (1,376 fewer) and public toilets (a drop of 1,629) over the same period.

 

In a paper released just before the 2024 general election, the Institute for Fiscal Studies reported that between 2010-11 and 2024-25, councils' overall core funding fell by 9% in real terms, despite significant increases in demand for services. During the financial year 2024/25 alone, 19 local councils in England were granted “capitalisation directions”, where local government financial rules were relaxed so they could make use of capital budgets to help support day-to-day spending. Since 2020/21, 29 councils have been granted capitalisation directions valued at more than £3bn. Many local authorities have already made, or are planning, further cuts to services in an attempt to balance the books ahead of their budget-setting meetings in February/March 2025. These come on top of well over a decade of significant cuts and include:

 

 

Funding gap figures measured against planned spending figures

UNISON has been calculating the collective funding gap figures for councils for several years. This year, we have also recorded the net revenue budget each local authority has predicted for the same financial year – allowing predicted funding gap figures to be put into greater context.   By measuring local shortfalls as a proportion of each council’s predicted net revenue budget, it’s possible to get a stronger sense of whether that authority is in major financial trouble. For instance, a large local authority like Glasgow faces a £50m funding gap for 2025/26. But the city council has a predicted net revenue budget of almost £2bn, which means the funding gap accounts for 2.6% of Glasgow’s budget. In contrast, a far smaller district council like Rushmoor faces a £4.1m funding gap against its net revenue budget of £11.9m – meaning its funding gap represents 34.6% of its predicted revenues. So, while financial difficulties at top-tier councils like Birmingham, Nottingham, Shropshire and Bradford often dominate newspaper headlines, UNISON’s figures illustrate the all-encompassing nature of the funding crisis and reveal why smaller councils are experiencing huge spending challenges.  

 

Largest funding gaps by size

The table below shows the top 10 councils with the largest predicted funding gap figures for 2025/26.

 

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While district councils are not responsible for providing adult and children’s social care services (the largest cost pressures for top-tier councils), the escalating housing crisis has heaped huge pressures on district budgets.  Late in 2023, district councils organised a cross-party appeal for more funding for homelessness and temporary accommodation to help deal with soaring costs. According to the District Councils’ Network, total district council spending on temporary accommodation rocketed 228% in just five years: from £66m in 2017/18 to £216m in 2022/23. The abilities of councils to weather this financial storm have also been hampered. Years of sustained austerity has meant many local authorities have significantly depleted service levels. So those councils where funding gaps represent a higher proportion of their revenue budgets are likely to find it particularly challenging to set a balanced budget without significant service and job cuts. 

 

Funding gaps by region

Councils in Greater London have the highest collective funding gap as a proportion of their collective net revenue budgets by region. This is illustrated by the table below, although it is clear the situation is highly challenging in every area.

 

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Funding gap by council type for 2025/26

 

What needs to happen next?

UNISON welcomes the commitments by the new Labour government to introduce multi-year funding settlements to allow local councils to better plan their spending and end wasteful competitive bidding for funding. However, without additional emergency grant funding for councils in England they will be unable to deal with the immediate financial challenges. That means there is a serious risk of the widespread collapse of local government.  Council funding in Scotland and Wales is devolved, but the respective governments should receive additional resources from Westminster that can be passed to their councils. Work must also be done at pace to reform how local authorities are funded to tackle the huge reduction in central government resources since 2010. Sectors like adult and children’s social care urgently need to be reformed to stem the flow of money leaving councils and boosting the profits of private providers. 

 

How UNISON’s data was compiled

UNISON sent the following freedom of information request to every council in England, Wales and Scotland at the start of May 2024 (data continued to be collected until 1 September): 

  1. What is your current predicted funding gap by the end of the financial year 2025/26?
  2. What is your current predicted net revenue budget for the financial year 2025/26?
  3. What is your current predicted cumulative funding gap by the end of the financial year 2026/27?  (the total combined predicted funding gap of the financial years 2025/26 and 2026/27)
  4. What is your current predicted net revenue budget for the financial year 2026/27?

A total of 171 (out of 370) councils provided their funding gap figures via email. Others directed UNISON to their most recent medium-term financial plan, or other papers from budget-setting meetings in early 2024. For these councils, the data was manually gathered by UNISON. More than 95% of councils supplied their net revenue budgets for future years but, in the instances where they did not, the current 2024/25 net revenue budget figure was used to calculate what percentage the funding gap figure represented.

 

 

January 2025