Councils warn of £7bn funding black hole threatening local services in three years

Councils in England are facing a £7 billion funding black hole within three years opening up a gap so large it is more than the current council spend on roads, transport, homelessness and housing services combined. 
 
Ahead of its Annual Conference in Bournemouth next week, the Local Government Association (LGA) said this risks leaving residents facing longer waits for adult social care assessments, rising homelessness, and cuts to neighbourhood services including road maintenance, libraries, parks and waste collections. 
 
New LGA analysis warns that by 2028/29, councils will face extra cost pressures equivalent to 22 per cent of their current spending just to stand still. 
 
This is driven by rising demand for homelessness support, children’s services, adult social care, home to school transport and new national requirements such as Simpler Recycling and the Emissions Trading Scheme. 
 
Councils have received some funding growth in recent years, and a much-needed multi-year funding settlement has improved councils’ financial certainty, however, some councils have done better than others from new funding allocations. Local government also has a strong track record of innovation and continues to drive efficiency, such as through shared service provision and digital transformation programmes. 
 
However, ongoing pressures on local government finances are illustrated by an unprecedented 36 councils having been granted exceptional financial support (EFS) by government to set balanced budgets this year (2026/27). 
 
Only a significant increase in resources can protect the financial sustainability of councils and empower them to unleash growth and service reform at scale.  
 
The LGA is calling on the next Prime Minister and their government to lay out a new path for local services that is not reliant on council tax rises, short-term fixes and unsustainable emergency bailout arrangements.  
 
It said government also needs to commit to deeper, long-term reform of local government finance, including a cross-party review of council tax, business rates retention and other funding sources.  
 
It is also critical that government works with councils on reforms to key services, such as SEND and adult social care. Public service reform – including a focus on prevention, combined with genuine devolution, and the development of strong digital and technology foundations to drive productivity and efficiency – is vital to help councils manage and reduce demand for acute services. 
 
LGA Chair Cllr Louise Gittins said: 
 
“The cost and demand pressures facing councils are unrelenting. In just three years, councils will need around 25 per cent more money simply to stand still. Without action, the services people rely on every day, from social care to safe streets, will be eroded. 
 
“Whoever takes up the keys to Number 10 will have a lot of competing priorities. But fully funded, sustainable public services will need to be at the heart of any plans to improve lives and inspire hope in the future.  
 
“Councils want to get on with supporting people, boosting local economies and delivering local priorities. But they can only do that with the long-term funding they need, and public service reform.” 
 
Notes to Editors 
 
1. The LGA’s analysis compares modelled growth in cost pressures facing councils against expected change in income. Where the growth in cost pressures exceeds growth in income this creates a funding gap. We calculate a funding gap of £2.0 billion in 2026/27, growing to £4.3 billion in 2027/28 before reaching £7.0 billion in 2028/29 compared to 2025/26. 

2. The model is based on the additional costs, such as inflation, wage growth, demographic pressure, of delivering the same level of service in the future as in the base year 2025/26. However, we also factor in the additional modelled costs of a number of new responsibilities being placed on councils in the Spending Review period. Funding forecasts are taken from the multi-year settlement published by Government in February 2026. This includes funding for some of the new responsibilities facing the sector. 

4. Government undertook the Fair Funding Review 2.0 (FFR2) in 2025. This redistributed council funding within the sector based on a new assessment of relative needs and resources. The great majority of councils will have transitioned to their new funding position by the end of the Spending Review period in 2028/29. A small number of councils see increases in funding as a direct result of the FFR2 to the extent that their income growth outstrips their modelled cost pressures in this period. We do not include these in the calculation of the sector-wide funding gap.  

3. The forward-looking nature of the model means it does not factor in the spending cuts the sector has already made since 2010/11. The £7 billion funding gap is the amount needed to maintain services at their 2025/26 level (plus some new responsibilities), rather than the amount needed to put the sector on a sustainable financial footing that addresses the 15 years of funding and cost pressures the sector has faced. 

5. The model is focused on councils’ revenue spend in their general fund revenue accounts. It does not include pressures in councils’ Housing Revenue Accounts, where they have them, or their capital programmes. 

6. A full technical guidance document will be on the LGA website shortly. 

7. Cost pressures by 2028/29 by service areas compared to 2025/26 

* We exclude spend education spend on schools, and spend on police and fire and rescue services. The other education and community services line includes the modelled treasury management costs of councils’ high needs deficits and the residual high needs deficits faced by councils following the application of the High Needs Stability Grant to current deficits.