One in 10 councils with social care responsibilities and two thirds of district councils face real-term funding cuts this year (2026/27), the Local Government Association (LGA) is warning today.
The LGA, which represents councils across England, said it is right that steps have been taken to reform the local government finance system, multi-year settlements, including for the Public Health Grant, and grant consolidation and simplification.
Councils are at the heart of every national priority. Extra funding for children’s services and to reflect the growth in EHCPs and specialist provision and increased investment in the Affordable Homes Programme is also crucial as councils strive to build homes and ensure young people and families get vital support.
However, while funding levels have risen over the last few years, costs and demand pressures continue to outstrip the overall amount of funding available to councils.
While some councils will benefit from additional resources through the Government’s Fair Funding Review, others will see their funding fail to keep pace with inflation and demand pressures.
Despite positive transitional protection, the LGA said some councils are still facing real-terms reductions.
In its response to the Government’s consultation on the provisional Local Government Finance Settlement, the LGA warns:
The LGA anticipates there will be an increase in the number of applications for Exceptional Financial Support (EFS) arrangements to help set budgets for 2026/27.
These arrangements have allowed councils to cover day-to-day revenue costs by borrowing or with capital receipts.
In some cases, this has seen councils able to increase council tax above current referendum limits.
The LGA remains clear that council tax increases alone are not the answer to the funding pressures facing local services, placing a growing burden on local taxpayers while failing to resolve underlying funding gaps.
The LGA also has concerns about the use of EFS agreements to support councils experiencing severe financial pressure.
Government should urgently provide additional new funding to protect councils from real-terms cuts and work with councils on deeper, long-term reform so local services remain financially sustainable and communities get the support they need
There is a risk that the EFS, as currently designed, could load struggling councils with further debt and/or undermine future capital programmes by eroding councils’ capital receipts.
It said the Government also needs to commit to deeper, long-term reform of local government finance, including a cross-party review of council tax, business rates retention and other funding sources.
Councils also urgently need clarity on SEND funding and a credible plan to address growing high-needs deficits, which are the result of structural under-funding rather than local mismanagement.
Councillor Louise Gittins, LGA chair, said: “Councils have welcomed the first multi-year settlement in a decade and support the principle of funding reform, but all councils need adequate funding to fully meet spiralling cost and demand pressures.
“Government should urgently provide additional new funding to protect councils from real-terms cuts and work with councils on deeper, long-term reform so local services remain financially sustainable and communities get the support they need.
“Councils remain committed to strengthening localism by working constructively with government to secure greater funding, enhanced local flexibility, and new powers, so councils can lead place-based solutions and deliver for communities.”