Spending Review 2025 submission: Letter to the Chancellor

We are proud to represent the interests of local government in England and the people it serves. It is against this backdrop that we are pleased to submit evidence on behalf of our members to inform Phase 2 of the Spending Review.

Dear Chancellor,

We are proud to represent the interests of local government in England and the people it serves. From Sunderland to St Ives, from Carlisle to Camden, local councils form the backbone of our country, with dedicated councillors and officers making a difference every day to help build thriving communities and improve the lives and livelihoods of their residents.

From Leeds City Council leading a pioneering flood alleviation scheme to protect 33,000 jobs and 4,000 homes, to Essex County Council and Chelmsford City Council driving a major infrastructure upgrade and regeneration scheme that will see 14,000 homes built, to Cheshire West and Chester Council establishing the first decarbonised industrial zone in the world, supporting over 1,000 businesses and 24,000 jobs, local councils are the key to solving our biggest national challenges and critical in promoting sustainable and inclusive local economic growth.

It is against this backdrop that we are pleased to submit evidence on behalf of our members to inform Phase 2 of the Spending Review. Our submission reflects the “mission-led, reform-focused and technology-enabled” terms of reference, and we provide a case to underline the central and foundational role of local government in bolstering growth and successfully realising the ambitions set out in your Government’s Plan for Change.

Our formal, detailed submission, which sets out our members’ key concerns and actionable asks, is set out in Annex 1. Key elements include:

Local government finances: To fix the financial foundations of local government, councils need a sustained increase in funding that recognises growing cost pressures in adult social care, children’s social care, services for children with special educational needs and disabilities (SEND), home-to-school transport and temporary accommodation. Government should also ensure councils receive sufficient additional funding to accommodate increases in the National Living Wage and to compensate them fully for the costs of recent changes to employer National Insurance Contributions (NICs). The efficacy of Exceptional Financial Support (EFS) should be reviewed. A cross-party review of local government funding, including council tax and business rates, is necessary, as is consideration of alternative and additional forms of council funding. Government’s delivery of its current commitments to local government finance reform must be timely, transparent, with proper transition arrangements.
Public sector reform: Councils should be central to these important reforms. The strong value for money of preventative services delivered by councils is clearly evidenced, covering areas such as social care, employment, homelessness, culture and leisure. We are calling for investment in test and learn approaches, workforce, sector-led improvement and recognition of the important connection between councils and the voluntary sector. Adequate resources for the vital long-term role of councils in the welfare system are essential, including a planned replacement for the temporary Household Support Fund. The Public Health Grant should be restored to 2015/16 levels with a review of its distribution to meet changes in population, deprivation and need, and a year-on-year increase provided as recommended by the Hewitt report.
Technology-led reform: There is an opportunity to build on the digital innovation that has already taken place in councils and unlock the potential of a digitally enabled local government sector. The Government should work with the LGA to create a dedicated Local Government Centre for Digital Technology (LGCDT) within the LGA. More generally, the Department for Science, Innovation and Technology should work with our organisation to address challenges to digital inclusion and connectivity and empower communities digitally.
Barriers to opportunity mission: Council support for children, young people and families is central to the delivery of this mission, which should be driven forward with a new cross-government strategy to ensure that all partners are working towards a shared ambition. Essential council-backed services, including preventative services, need reform, more support and long-term investment to address foundational challenges. Immediate action is also required for SEND provision, high-quality placements and home-to-school transport – with these issues alone crippling council budgets across the country. It is essential that the Government sets out its plans for urgently needed SEND reforms at this Spending Review. We are also calling on Government to write off all high needs deficits, so councils are not faced with having to cut other services to balance budgets through no fault of their own or their residents. Family Hubs should be rolled out across the country with further investment in child health services. Councils require sufficient powers, resources and levers to deliver their statutory duty to ensure that families have access to high quality early education and childcare.
NHS and social care mission: To build an NHS fit for the future it is essential a system-wide approach is taken, where local government’s critical role is recognised and appropriately funded. Effective NHS reform cannot be realised without a clear and urgent plan for adult social care reform. Health services should be place-based, personalised and address the root causes of inequality of outcomes. In the meantime, there is an acute need to provide an immediate injection of funding to stabilise the adult social care system. We need to see scaled up investment in tech-enabled care, particularly for those on lower incomes. There is a clear case to invest in adult social care prevention trailblazers and support independent evaluation of preventative interventions. As primarily a people-service, we need to see funding and support in delivering recommendations of the Skills for Care ‘workforce strategy’, while going further in supporting unpaid carers by funding paid leave for carers.
Kickstart growth mission: As leaders of place and as major local employers, local government has a critical and unique role in unlocking inclusive and sustainable growth. Councils set the foundations and create the conditions, from providing education, skills and transport to backing regeneration, inward investment and housing. This reality must be backed with sufficient funding and flexibility so that all councils, including those in combined or strategic authority areas, can lead local growth priorities, unlocking the full potential of their local people, businesses and places. This is why we are calling for greater fiscal decentralisation, including mechanisms like a tourist levy and other opportunities made available by default to devolved areas. The Government should provide long-term consolidated investment in local transport infrastructure, while there should be a stronger partnership with our members to deliver Get Britain Working reforms. For housing, we need to see key reforms taken forward, such as Right to Buy and homelessness, actions to strengthen Housing Revenue Accounts, continued investment in the One Public Estate programme, Brownfield Land Release Fund and the Local Authority Housing Fund, and funding for a new multi-year council housebuilding sector-led support programme. It is critical to uprate temporary accommodation subsidy rates and develop a sustainable funding model for the delivery of supported housing.
Green energy mission: To accelerate towards net zero, the Government should adopt a comprehensive long-term, place-based strategy that reforms the funding, planning and delivery landscape to unlock the potential of councils as leaders and conveners with housing, planning, waste and transport powers. This includes the Government consolidating and devolving funds from existing schemes into a Warm Homes Plan that delivers long-term investment in retrofit, and a Local Power Plan that will scale community energy projects and link with support for local energy planning, and national backing of local transport decarbonisation plans including demand-management schemes. The Government should rapidly review plans for the Emissions Trading Scheme extension to waste, to protect local services and to prioritise policy and finance incentives on producers to design out fossil material. Government should seek to design out carbon use across the economy, for instance progressing with the Future Homes and Building Standard and prioritising roof top solar. Additionally, it should integrate climate resilience into policymaking, support nature recovery and provide flexible flood defence funding.
Safer streets mission: Councils play a crucial role in promoting community cohesion, reducing reoffending, combatting anti-social behaviour, tackling knife crime and countering extremism. But councils need resources, alongside reform of the partnership landscape, to best deliver their role. The Government should establish a long-term, unified funding stream for community safety for three to five years, directly allocated to councils or Community Safety Partnerships (CSPs). This funding should increase CSP capacities, including analytics, wardens, and CCTV, with local discretion on usage. The Government should also reform the CSP landscape to ensure they have adequate powers, and fund preventative services to address childhood adversity and poor mental health.

But while councils have the potential to drive growth and help deliver the Plan for Change, we cannot shy away from the fact that councils are under severe financial strain. Inflation, wage pressures and growing demand and complexity of need mean that councils face a funding gap of £1.9 billion in 2025/26, rising to £8.4 billion by the end of the Phase 2 Spending Review period in 2028/29.

The sector’s current financial pressures are deep-rooted and have been driven by a mix of long-standing funding reductions and cost and demand pressures. LGA analysis demonstrates that councils made an estimated £24.5 billion in cuts and efficiencies in service spending between 2010/11 and 2022/23 in order to manage funding cuts, inflation, wage growth, demographic pressures and growing service demand over this period. The huge savings and efficiencies the sector has already made, and the damaging effect these have had on council finances and services for residents, cannot be ignored. Councils continue to strive to deliver efficiencies and greater value for money, they have no choice given the gap between their income and cost pressures.

Last year, 18 councils required Exceptional Financial Support (EFS) to set their 2024/25 budgets. More recently, our January 2025 survey indicates that 25 per cent of chief financial officers (CFOs) said that their council had either applied for EFS to support their 2025/26 budget or they are likely to do so in 2025/26 or 2026/27.

Many councils are also financially vulnerable due to a mismatch between demand and funding for services for children with SEND. A substantial proportion of relevant councils now run a ‘deficit’ on these services; a situation only made possible by a statutory override allowing councils to run a deficit in their high needs account. This override is due to expire at the end of 2025/26. Our January 2025 survey indicates that 53 per cent of relevant councils say they will not be able to set a balanced budget for 2026/27 if the override is not extended or another method to address their deficits is not introduced.

We recognise that MHCLG has recently made efforts to increase funding for the sector and has announced the introduction of multi-year funding settlements and a review of needs and resources. Whilst these are a welcome starting point, they do not address the fact that the sector is increasingly reliant on EFS and temporary adjustments to accounting rules to remain solvent. A substantial increase in funding and the introduction of more significant reforms to the local government financial framework are urgently needed.

In December 2024 the Government published the English Devolution White Paper, including proposals for local government reorganisation (LGR). The LGA, as the champion and national voice of local government, is working closely with our members to respond fully to the proposals.

The White Paper cites the potential for efficiency savings as a driver for local reorganisation. There needs to be transparency on the Government’s modelling of any future savings, particularly if there are plans to incorporate these into the funding arrangements of the new unitary authorities. It is also crucial that Government assesses transition costs for the current proposals in a transparent and timely manner and considers how these costs can be met given the financial challenges already faced by the sector.

Councils also need clarity on how much existing council debt will be transferred to the new authorities. New unitary authorities must be financially viable from the outset rather than over-burdened by debt inherited from predecessor authorities.

In the accompanying Annex 1 we present our evidence base and asks. We set out the actions we believe are necessary for the Government to fix the financial foundations of the sector, and then lay out the contribution councils can make to public service reform, and technology-led reform specifically. The remaining sections set out the role councils can play in delivering your Government’s five missions, and the support they require to maximise their contribution. Annex 2 provides a summary list of all our asks.

As ever, we would welcome the opportunity to discuss any aspect of our proposals.

Yours sincerely,

Cllr Louise Gittins, Chair, LGA
Cllr Kevin Bentley, Conservative Group Leader and Senior Vice Chairman, LGA
Cllr Bev Craig, Labour Group Leader and Vice Chair, LGA
Cllr Joe Harris, Liberal Democrat Group Leader and Vice Chair, LGA
Cllr Marianne Overton MBE, Independent Group Leader and Vice Chair, LGA