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Local authorities across England and Wales say their financial systems are under extreme strain, warning more councils may face bankruptcy in the coming years as they await details of their government funding package later this month.
Council leaders fear upcoming changes to annual funding rules will mean major cuts for many authorities, making it increasingly difficult to maintain balanced budgets or deliver essential public services.
So far, 29 councils have required emergency government loans to meet basic financial duties, including Croydon, Thurrock in Essex and Birmingham. Andrew Jamieson, Norfolk county council’s deputy leader for finance, said he expects that number to rise once ministers announce the new funding settlement.
“We’re often accused of exaggerating, but councils genuinely are at breaking point,” he said. “The money simply isn’t there. More authorities will inevitably be unable to meet their statutory responsibilities.”
The Local Government Association echoed these concerns, saying rising costs and increasing demand are overwhelming councils, particularly in children’s services, adult social care, homelessness support and specialist school transport for children with SEND.
It added that only a significant funding uplift could prevent a wider financial collapse and allow councils to provide the essential services residents rely on.
The government previously agreed to a three-year funding package for councils, but has not yet released the formula that determines how the money will be divided. Its updated “fair funding review 2.0”, due on 17 December, is expected to target support at areas with high deprivation.
Jamieson, a Conservative councillor, said the revised formula is likely to leave many high-need authorities worse off. While Norfolk hopes to plug a £62m gap through further efficiencies, it still faces a £6m shortfall that could only be filled through service cuts or raising council tax from 3% to the 4.99% maximum.
He noted that although some areas suffer worse deprivation, Norfolk’s older population—26% of residents are over 65—creates heavy demand for support.
Sources within Labour claimed the funding changes build on reforms introduced under former prime minister Rishi Sunak, which favoured wealthier Conservative regions. Labour says its recovery fund, introduced last year to offset these imbalances, will be permanently embedded in the new settlement and will prevent any council from going bankrupt in 2026–27.
A spokesperson for the Ministry of Housing, Communities and Local Government said council tax decisions are made locally, with increases capped at 5% unless approved by a public referendum, ensuring residents retain control over rises.
Despite receiving additional support, Labour-run authorities have warned they still face painful choices ahead of the 2026–27 budget cycle. Hartlepool council, which recently announced a freeze on council tax, must still close a £9m deficit, including £3m created by the freeze.
Jamieson stressed that government claims of real-terms funding increases are misleading, as they include income from the maximum 4.99% council tax hike. He said council tax has grown from 42% of Norfolk’s income four years ago to 60% today, despite years of cost-cutting.
“Local government funding is fundamentally broken,” he said. “We’ve saved £652m since 2012, but it becomes harder every year.”
CIPFA adviser Joanne Pitt said council borrowing has reached £1,500 per resident and continues to rise, with most of the 29 authorities receiving special financial support extending their loans simply to stay solvent.
“Councils have no realistic way to repay these loans, let alone the 30 authorities now receiving additional exceptional support,” she said.
Cornwall council will be among the first to publish its 2026–27 draft budget, expected Tuesday, outlining £40m–£70m in savings to manage soaring costs, particularly in children’s and elderly care. This follows £50m in cuts the previous year.
London Councils, representing the capital’s boroughs, warned of a £1bn funding gap this year and a cumulative shortfall of £4.7bn from 2025–26 to 2028–29. The group predicts that by 2028 half of London boroughs could require emergency support to avoid bankruptcy.
John Merry, deputy mayor of Salford and chair of the Key Cities group, said authorities are struggling with “impossible choices” due to spiralling pressures in social care and temporary accommodation. He noted that 60% of councils expect to sell assets next year to plug funding gaps, calling it a grim sign of long-term underfunding.
Mike Cox, finance chief at Bournemouth, Christchurch and Poole council, said sudden last-minute cuts could land just weeks before budgets must be finalised.
“Uncertainty from central government is making a difficult situation worse,” he said. “Councils must choose between raising taxes, selling assets and cutting essential services. We need clarity and a truly fair funding deal. As it stands, the review doesn’t feel fair at all.”
