The Chartered Institute of Public Finance and Accountancy (CIPFA) has said that it views the National Audit Office’s (NAO) report on local government financial sustainability as an acknowledgment of the sector’s persistent financial crisis.
The report by the UK’s independent public spending watchdog highlights the increasing unsustainability of local government finances due to rising demand for essential services, delayed financial reforms, and reduced investment in preventative programmes.
CIPFA senior policy manger Joanne Pitt said: “This report by the NAO is a welcome acknowledgment of the current circumstances of the Local Government sector, not just in terms of financial instability but also pointing out the need that the current reforms must all be considered holistically not in isolation.”
Between 2015-16 and 2023-24, local authority funding through the Local Government Finance Settlement increased by 4% to £55.7bn ($70.17bn).
However, this did not result in increased funding per person, which fell by 1% during the same period.
The demand for essential services, particularly adult and children’s social care, temporary accommodation, and the special educational needs and disabilities (SEND) system, has outpaced population growth, according to the NAO.
In 2023-24, more than half (58%) of the £72.8bn spent by local government was allocated to adult and children’s social care.
The report highlights the growing strain on public services, with only 50% of education, health, and care (EHC) plans for SEND issued within the required 20-week deadline in 2023.
The number of families housed in bed and breakfast accommodation beyond the six-week legal limit rose to nearly 3,800, up from 860 in 2018-19.
Requests for adult social care increased by 15% between 2015-16 and 2023-24, but only 2% more people received support, while waiting lists grew to nearly 79,000 individuals, including those waiting over six months.
To stabilise local authorities, the government has provided several cash injections, including £880m in additional social care funding, £1bn for SEND services, £233m for homelessness support, and £270m for the Children’s Social Care Prevention Grant, announced in February 2025.
However, CIPFA cautions that these measures, while helpful, do not address long-term financial sustainability.
Pitt said: “The report highlights that 42 local authorities that have received over £5bn of support through the exceptional financial support framework (EFS ). While we acknowledge the important part this plays in stabilising authorities in the short term we must reiterate that this is not new money; EFS allows a local authority to either borrow money or sell its assets. Neither of which are long term sustainable funding approaches.”
Currently, 30 councils have received EFS to balance their budgets for 2025-26.
Meanwhile, the government’s statutory override on high-needs budget overspending is set to expire in March 2026, potentially pushing 43% of local authorities toward issuing Section 114 notices, effectively declaring bankruptcy, if no action is taken.
The NAO warns that financial uncertainty is limiting local authorities’ ability to plan for the long term, leading to inefficient spending.
It urged the government to take a cross-departmental approach to financial sustainability, develop a funding and service reform plan focused on long-term value for money, and explore how preventative services can be better funded and evaluated.
CIPFA shares these concerns, emphasising the importance of prevention in reshaping local government finances.
“The report also acknowledges that prevention is critical to resetting the local government narrative. CIPFA is working with the Health Foundation to identify ways to make this area of spend more transparent and accessible, and will publish our findings in October 2025,” Pitt concluded.
The government has committed to returning to multi-year finance settlements in 2026-27 and launched three consultations alongside the provisional 2025-26 local government finance settlement to help stabilise council finances.
Projections suggest funding per person will increase by 7% by 2025-26, but long-term reforms remain crucial.
CIPFA continues to advocate for financial stability and sustainable investment in local government.
NAO head Gareth Davies said: “There have been repeated delays to local government finance reform and government can no longer resort to short-term solutions to support local authorities. Action to address this must resolve the systemic weaknesses in local government financial sustainability through a comprehensive, cross-government approach.”
