The “party silence on council funding is remarkable given the challenges”

Other councils could suffer serious financial difficulties without a cash injection from the next government if demand and costs do not fall “significantly and quickly”, the research suggests.

In a warning about the viability of town councils in England, the Institute for Fiscal Studies (IFS) said it was “remarkable” that the main parties had been “silent” on the issue and warned that the possibilities of new Service cuts were severely limited for some authorities after more than a decade of financial difficulties.

The IFS also said that councils in the most deprived areas, which rely more on government grants compared to council tax revenues, could be hit hardest without a significant redistribution of funding in their favor.

The analysis found that if demand for services such as social care continues to rise alongside cost pressures above inflation, councils could be forced to make further cuts to services.

This would still be the case if the next government froze rather than reduced local authority grants, the latter approach being included in current spending plans for “unprotected” areas of spending, and if council tax increased by 5 % each year, according to the analysis.

This increase in council tax would be 3% above inflation, representing the fastest rise in real terms since Parliament ended in 2005.

The IFS said: “A combination of statutory duties towards vulnerable residents and significant cuts to more discretionary services during the 2010s means that some councils, at least, would struggle to reduce services further – exposing them at risk of serious financial difficulties. »

The report reveals that current spending plans from Labor and the Conservatives suggest unprotected services could be cut by between 1.9% and 3.5% per year until 2028/29.

However, the programs do not indicate whether the next government would prioritize funding for municipalities, as has happened since 2019, or reduce subsidies to levels seen in the 2010s, he added.

The housing tax generally generates 57% of municipal funding, compared to 15% from government subsidies.

The analysis found that a 5% increase in council tax each year of the next parliament, which is the level recently authorized in a local referendum, would mean the average cost of a band property D would be £600 higher in 2029 than in 2029. is now.

If we consider a scenario in which subsidies are reduced by 2.7%, which corresponds to the midpoint of the expected range for unprotected services, and where council tax increases by 5% per year, the Municipal funding would increase each year by 2.1% on average in real terms.

In a “relatively optimistic” scenario where subsidies are frozen in real terms, municipal funding would increase by 2.5% per year on average, but this figure is lower than the average increase in overall funding of 2.9% per year. year between 2019 and 2024, according to the report. report said.

Separately, the Local Government Association (LGA) said real terms funding increases of 4.5% per year are needed to maintain services at current levels if demand and cost pressures increase at same pace as in recent years.

This suggests that demand and costs would need to be almost halved for the change in funding to keep pace with these tensions, even if there were no real-terms reduction in government subsidies and the tax housing increased by 5% each year, the analysis concludes.

“It is likely that recent strong demand growth and cost pressures will eventually slow, but the timing and extent of this slowdown are far from certain,” the report adds.

According to the analysis, the municipalities most dependent on housing tax in the most disadvantaged areas would be particularly vulnerable to financial difficulties.

A 2.7% reduction in grants and a 5% increase in council tax would result in a 1.3% increase in funding for authorities in the 10 most deprived areas, compared to a 3% increase in the least deprived .

The report therefore states that a “significant redistribution” of grants would be necessary to avoid this disparity, but warns that such a move could be difficult to implement, “especially if overall grant funding is limited”.

Kate Ogden, senior research economist at the IFS and author of the report, said: “Many councils are clearly facing financial difficulties. They are struggling to meet the growing demand and costs of services such as social housing placements for children and adults, support for special educational needs and temporary accommodation for the homeless.

“Unless these pressures slow significantly and quickly, or the next government provides large sums of money to local authorities, councils are likely to have to make cuts in some areas of their provision.

“Given that discretionary services have often seen cuts of 40% or more since 2010, councils may struggle to achieve this. Others could be pushed to the financial brink… It is remarkable that the main parties remain silent on how they would meet these challenges.”

Responding to the report, Kevin Bentley, LGA senior vice-chair and Conservative leader of Essex County Council, said: “A funding gap of more than £6 billion will face local services over the over the next two years – fueled by rising costs and demand pressures. – means a chasm will continue to widen between what people and their communities need and want from their councils and what councils can deliver.

“The LGA is calling on all political parties to commit to a significant and sustainable increase in council funding in the next spending review, alongside multi-year funding deals and plans to reform the council financial system. local communities.

Labor and the Conservatives have been contacted for comment.