Local government should be at the centre of the new government’s plans for rebuilding Britain. The sector has a key role to play in regenerating left-behind areas, building community resilience, enhancing care for all ages, supporting vulnerable groups, and improving environmental sustainability. However, based on our experience working with local government, local authorities will have to overcome three key hurdles if they are to play their full part in national renewal:
1. Dealing with Rising Demand
Local government faces a challenging paradox: demand has been escalating while funding has fallen in real terms since 2010. This is most noticeable in social care, which now comprises over 75% of controllable spending and is afflicted by staffing issues related to tightening visa restrictions and low wages.
Other vital services like sexual health services and homelessness support also face rising demand. And years of underinvestment in areas such as town planning and road maintenance have led to significant backlogs of work, with additional central government funding barely scratching the surface of the intervention needed.
2. Facing Austerity 2.0
Successive cuts to grants have significantly weakened local government in England, with deprived areas hardest hit. Despite relying more on central funding and facing greater demand for crucial services, these areas have seen the largest cuts in government grants. On average, local authorities spending power is 12% lower than it was in 2010/11, reaching 28% for the poorest 10% of councils. The 2024 settlement failed to bridge the widening funding gap, with councils projecting a £1.1 billion shortfall and a £639 million overspend. This has increased reliance on local revenue sources and paid-for services, leading to steady increases in council taxes amidst a national cost of living crisis.
A survey conducted by the Local Government Association (1) suggests that one in five councils may declare bankruptcy in the next two years due to insufficient funding to sustain essential services. This financial challenge means councils must secure additional national funding or make spending cuts, leading to hard tradeoffs.
3. Retreating to the Core
With shrinking budgets, local authorities are being forced to prioritise statutory services and reduce spending on neighborhood and preventive services. Between 2010 to 2020, there was a 38% funding decline in real terms outside of adult and child social care, with significant variation across councils. As a result, there are now fewer libraries, less frequent waste collection, and fewer accessible routes outside London. The impact of more limited services is reflected in falling resident satisfaction levels in key council services.
The retreat has included cuts to preventative services, and only the most capable and financially fortunate councils have been able to maintain significant efforts to promote local growth, community cohesion and other preventive services. This leaves many in a vicious circle: battling increasing service demands, unable to invest in broad-based prevention, and making choices that undermine services for the public.
Escaping the Vicious Cycle
Despite these challenges, some local authorities are proving that it is possible to improve services and outcomes for residents. Councils can therefore learn from each other and make targeted investments in change to navigate continued austerity. Some councils have successfully engaged in the government’s often disappointing devolution agenda – managing to seize additional powers and budgets to shape their destiny. Others have worked creatively in commercial and cross-sector partnerships to access increased external investment in infrastructure. Others have built new models for efficient prevention-oriented service delivery – such as Community Hubs (2) or early help services.
Councils must also, in our view, learn from high performing organisations across sectors. At Leapwise, we work with councils to put in place the foundations of high performance, which are well-known yet too often neglected. In terms of strategic planning, this means prioritising spending that drives the greatest public value. In terms of leadership effectiveness, it means agreeing on and living the leadership behaviours that motivate, engage and guide the workforce to success. In terms of governance, it means minimising complexity while ensuring strong community and stakeholders voice in decision-making.
To navigate austerity and achieve the best outcomes for communities, we want to foster debate around the strategic challenges facing the sector. And we think the central challenge is how best to create high performance councils amid the huge constraints the sector operates under.
Please get in touch with us to discuss and look out for our High-Performance Local Government report in the coming weeks.
