Councils warn of ‘disastrous’ cuts and viability threat as inflation costs rise

Local authorities have warned of “disastrous” emergency funding cuts to local services due to spiralling inflation and other pressures which are threatening their financial viability.

Many councils have been forced to abandon their financial plans set just three months ago owing to the “unprecedented crisis”, with rising costs meaning many will struggle to meet their legal duty to balance the books this year.

New analysis by the Conservative-led Local Government Association (LGA) has found inflation alone will add £800 million in additional cost pressures on budgets in 2022-23.

The combined impact of general inflation, energy costs and projected increases to the National Living Wage takes that total to £2.4 billion, increasing to an estimated £3.6 billion in 2024-25.

Calling on the Government to provide “adequate” long-term funding ahead its annual conference in Harrogate this week, the LGA warned there was a “serious risk to the future financial viability of some services and councils”.

The LGA said the impact of inflation and energy prices could not have been predicted when the local government finance settlement was finalised by ministers earlier this year, and when councils set budgets in March.

Rising demand for services at a time of dramatically escalating costs had created a “perfect storm”, undermining efforts by councils to address inequalities and support communities through the cost-of-living crisis, the LGA said.

The organisation’s Conservative chairman James Jamieson said the threat to essential services would compound the impact of falling living standards across communities.

He added: “Inflation is not going to come down overnight. As our analysis shows, the impact on our local services could be disastrous.

“This will stifle our economic recovery, entrench disadvantage, and undermine government ambitions to level up the country.”

Councillor Jamieson said only “adequate” long-term funding to cover costs and “the right powers” would enable councils to deliver vital services, tackle the climate emergency and level up communities across the country.

A Government spokesperson said: “This year, we made an additional £3.7 billion available to councils so they can continue delivering key services, and we are working with the sector to understand the impact of emerging challenges.

“As many families face cost-of-living challenges, the record increase in the national living wage will mean someone working full time taking home £5,400 more annually than they were in 2010, while our £37 billion package of financial support is helping the most vulnerable in society.“