Latest news with #LocalGovernmentAssociation
The Guardian
15 hours ago
- Business
- The Guardian
Councils face millions in extra Send costs as overhaul delayed
Cash-strapped councils in England will be hit with hundreds of millions of pounds in extra costs after the government delayed tackling the £5bn deficits spent supporting children and young people with special needs and disabilities. Council leaders and experts said the two-year delay prolongs the financial struggles faced by local authorities as they await the government's overhaul of special educational needs and disabilities (Send) provision, and warned it could force more councils into sell-offs and insolvency. Local authorities have been allowed to keep high-needs deficits off their balance sheets, thanks to a special statutory override. This mechanism was due to end next April, creating a 'cliff-edge' that threatened to bankrupt scores of councils. The override will now run until April 2028, the government announced as part of its wider reforms to revitalise local government funding in England. Iain Murray, director of public financial management at the Chartered Institute of Public Finance and Accountancy, said the changes have not fixed the fundamental pressures facing local governments. Murray said: 'Without urgent solutions to both existing and future Send deficits, those councils grappling with unsustainable high-needs costs and rapidly growing cumulative deficits may, at best, be forced to make further reductions in essential services, and at worst, risk declaring themselves effectively bankrupt.' The Local Government Association has said more than half of councils risked becoming insolvent if the override ended next April. A Guardian investigation revealed in March that their combined deficits would reach £5.2bn by the end of this year. The additional borrowing is likely to reach £200m a year in interest payments and associated costs, as well as lost income from investments and assets as councils use up their reserves to cover the deficits and loans. Tim Oliver, chair of the County Councils Network, said: 'Council leaders can breathe a sigh of relief knowing they no longer face a financial cliff edge in nine months' time. 'We now need to ensure that the government's commitment to support councils to manage their Send deficits rings true. 'Despite the extension of the statutory override, many councils still face a number of issues, including rising debt outstripping reserves, mounting interest payments and lost investment income. For some, this could mean reducing services elsewhere or running into extreme financial difficulty. 'Therefore, it is critical government sets out a comprehensive solution later this year. This should include writing off deficits and compensating councils … ensuring that the slate is wiped clean.' Helen Hayes, the Labour MP who chairs the Commons education committee, said the extension was a 'temporary fix', and warned: 'The government should not delay a permanent resolution to local authorities' long-term Send deficits beyond 2028 and it must work to devise a solution that helps councils to achieve long-term financial sustainability and does not damage their finances further.' Council high-needs budgets have been under pressure from the sharp rise in children with special needs, with the number requiring extra resources detailed in education, health and care plans (EHCPs) rocketing in recent years. Nearly one in five schoolchildren in England now have recognised special educational needs, according to Department for Education figures, including 482,600 children with EHCPs. The government said it will use the two-year delay to reform how the Send system works and is funded. In that time ministers say they intend to deal with the high-needs deficits, despite only raising central funding for local government 1.1% a year on average until 2028-29. A government spokesperson said: 'This government inherited a Send system left on its knees, which is why we are looking at changes through our plan for change to improve support for children and stop parents having to fight for help while bringing about financial sustainability for councils. 'We will set out our full plans for reform in the autumn, including our approach to supporting councils with their deficits, to deliver excellence everywhere for every child.' Other measures in the consultation will see government grants moved away from wealthier urban centres such as London towards to places with higher deprivation levels, as well as rural authorities and tourist hotspots where funding does not account for surges in visitors. Officials say the move will not lead to higher council taxes, in part because the government's financial forecasts assume councils putting council tax up by 4.99% – the maximum increase without holding a referendum. Jack Shaw of Manchester University, an expert in local government, said: 'The longstanding failure to reform council tax has had a more detrimental impact on councils outside London and the south-east, so it's right that funding is corrected to take that into account. Some authorities will lose out, but there are transitional arrangements to mitigate that. 'Council cuts under the Conservatives mean that it'll take some time to put them on a more sustainable footing. Funding reform will improve the fortunes of many councils, but they'll continue to face acute financial challenges.'
Telegraph
3 days ago
- Business
- Telegraph
The £1bn cost of the National Insurance raid that Reeves ignored
Rachel Reeves's National Insurance tax grab has left councils facing a seven-figure shortfall with more at risk of bankruptcy, MPs have warned. The Chancellor raised employer contributions to 15pc during her Budget, but a Public Accounts Committee (PAC) report on Wednesday said ministers had failed to properly assess another £1.1bn of potential costs. MPs said the Government had not carried out an assessment of the true costs, and demanded it review the short- and long-term impact on providing services. Councils are now facing the risk of private providers passing on their increased costs and handing back social care contracts they can no longer afford to deliver, it said. The report added that local government finance was in a 'perilous state', with budget deficits putting many councils at risk of effectively going bankrupt. The Local Government Association (LGA), which represents councils, has already warned that more than half of councils are on course for insolvency next year. The National Insurance contribution rate for employers rose from 13.8pc to 15pc in April following changes in October's Budget. The salary threshold also dropped from £9,100 to £5,000, as the Government tried to raise tax for public spending. Ministers set aside £4.7bn to support the public sector, including £502m for councils to cover increases in their direct employment costs. However, the LGA calculated the actual cost to be £637m. It also warned of £1.1bn in extra costs for councils passed on by service providers they had commissioned. The PAC report said: 'Some local authorities may be able to provide financial support to service providers for these increases in costs, but it is unacceptable that the Ministry of Housing, Communities and Local Government and HM Treasury have not assessed how much impact this could have on local authorities.' It added: 'Spending on special educational needs and disabilities (Send) has outstripped the money available from the Department for Education to pay for it. Local authority deficits from these overspends are expected to be between £2.9bn and £3.9bn a year by the end of 2027–28. 'The mechanism which allows local authorities to keep these deficits off their books is due to run out in March 2026, and without it, many local authorities are at risk of effectively going bankrupt.' The charity, Mencap, which supports more than 4,000 people with learning difficulties, also told the committee it could be forced to hand back social care contracts after a potential £18m annual increase in costs due to National Insurance and national living wage rises. It comes as council tax is expected to rise again to fund major commitments announced earlier this month in Ms Reeves's first spending review. Rates are already at record levels, with nine in 10 areas across England enduring the maximum 4.99pc council tax rise this year, and parts of Scotland and Wales slapped with even higher increases. A spokesman for the County Councils Network, which represents local authorities, said the Government's compensation covered less than half of the increased costs in National Insurance. He said: 'This year, county and unitary councils are having to make an unprecedented £1.2bn in savings due to rising demand for services, compounded by recent government decisions. One of those was the decision to raise employers' National Insurance contributions, which has adversely impacted on councils. 'Our recent survey found that the Government's compensation covered just 40pc of the costs of this policy for county and unitary councils this year, meaning they will have to make up the shortfall through service reductions and other efficiencies.' Councillor Louise Gittins, chairman of the LGA, said the spending review had left councils under continued financial pressure. She said: 'Many will continue to have to increase council tax bills to try and protect services, but still need to make further cutbacks. While the Government faced tough choices, future funding for adult social care is good news but a lack of significant extra government money needed to meet immediate pressures is worrying.' Jim McMahon, of the Ministry of Housing, said the PAC's claims were not supported by the evidence. He said: 'The spending review provided over £5bn of new grant funding for local services, and that's on top of the £69bn we have already injected this year to boost council finances. 'The results speak for themselves. Over 95pc of audited accounts were submitted for the deadline we set, no S114 were issued by councils as a result of financial distress, and claims against Exceptional Financial Support were £1bn less than the previous year.'
The Independent
4 days ago
- Business
- The Independent
Starmer accused of ‘passing the buck' as council tax likely to rise
Prime Minister Sir Keir Starmer has distanced himself from expected large increases in local taxation, shifting responsibility to councils. Councils can increase council tax by up to 5 per cent following last week's spending review, with the police also granted powers to raise extra funds through a similar precept. The Institute of Fiscal Studies (IFS) has warned of the biggest rise in council tax for two decades as a result of the spending review. Sir Keir said that council tax rises are for councils to decide, noting the spending review allows the Labour government to show what difference it makes after a year of stabilising the economy. The Local Government Association and Lib Dems criticised the move, saying 'passing the buck to local government and asking hard-pressed households to shoulder the burden of mounting council tax bills is deeply unfair'.
Yahoo
12-06-2025
- Business
- Yahoo
How is council tax calculated and how much could it go up?
The government expects council tax in England to rise by the maximum amount every year until 2029, according to a leading economic think tank. The IFS says a "big chunk" of the funding for local authorities which was set out in the government's Spending Review assumes bills will rise by just under 5% in April 2026, 2027 and 2028. Most councils in England put council tax up by the maximum amount in April 2025, and average bills also rose in Wales and Scotland. Council tax is a compulsory charge on properties in England, Scotland and Wales. It is set by local authorities to raise money for providing services to residents, including: rubbish collection street lighting libraries police and fire services youth clubs parks and recreation facilities care services Typically, anyone who is over 18 and owns or rents a home has to pay council tax. However, there are some exemptions and discounts. Someone living alone, for example, is entitled to a 25% reduction, and properties occupied only by students are completely exempt. Some discounts are available if you - or someone you live with - has a disability. Northern Ireland uses a domestic rates system instead of council tax. Councils with responsibility for social care can increase bills every year by 4.99% without having to hold a referendum or get approval from central government. Smaller councils without social care duties can increase bills by up to 2.99%. Documents about police funding released as part of the government's Spending Review assume councils in England will put bills up by the maximum amount every year during the period covered by the calculations. IFS director Paul Johnson said that this would mean bills were set to rise "at their fastest rate over any Parliament since 2001-05". Chancellor Rachel Reeves said there had been no change to the cap rules, which were introduced by the previous Conservative government. "It is a cap, councils don't have to increase council tax by 5%," she told BBC Breakfast. But the Local Government Association said council budgets were under "severe financial pressure", and services may have to be cut even if bills do rise by the maximum. Council tax expected to rise by 5% a year Seven ways the Spending Review will affect you Of the 384 councils in England subject to the referendum rules, 294 (77%) put bills up by the maximum amount. Another 56 (15%) were close to the limit. Eight authorities (2%) either made no change or reduced bills. The government let six areas introduce bigger rises to help deal with funding pressures. Bradford Council increased bills by 10% while they rose by 9% in Windsor and Maidenhead, and in Newham. Birmingham, Somerset and Trafford put bills up by 7.5%. A number of other councils were not allowed to put up bills by more than the standard maximum, including Hampshire, which had asked for a 15% uplift. It means the average Band D council tax bill in England for 2025-26 is £2,280, which is an increase of £109 or 5% on the 2024-25 figure of £2,171. Council tax rates in Scotland had been frozen or had limited increases since 2007, but went up in April. Bills rose by an average of 9.6% in April, with increases of at least 10% in 13 areas. It means the average Band D council tax bill in Scotland for 2025-26 is £1,543, up from £1,418 in 2024-25. The country's 32 councils had warned that they faced a potential shortfall of £392m in 2025-26, which could rise to £780m the following year. The Scottish government said it was giving councils an extra £1bn in 2025-26 to help limit increases. Why are Scottish councils so short of cash when tax is going up? Council tax rates in Wales increased by an average of 7.2% in April. It means the average Band D council tax bill in Wales for 2025-26 is £2,170, up from £2,024 in 2025-25. Wales' 22 local authorities had been given £253m in December to help reduce increases, but council leaders said more was needed. How much you pay depends on your property's council tax band. Broadly speaking, the more expensive the property, the higher the band. In England and Scotland, bands are based on the price the property would have sold for in 1991. Wales uses 2003 prices and Northern Ireland 2005 prices. You can check your home's band in: England and Wales Scotland Northern Ireland Council tax bills also include additional charges. These are used to fund the cost of care homes and other adult social care services. Another is set by local police and fire authorities to help fund their work. Some cities with mayors, such as London and Manchester, can also add a separate charges for other services. About half of local authority funding comes from council tax, according to the Institute for Government (IFG). Councils in England can also raise money by charging for services including parking, swimming pools and planning applications. Most of the rest comes from a combination of business rates and central government grants. Labour had promised £2bn of central government funding for English councils in the year from April 2025, an extra £700m on top of the £1.3bn announced in October's Budget. But £515m of that was earmarked to pay for higher National Insurance (NI) contributions from April. The local government settlement in the Spending Review provides an additional £3.3bn for local authorities in 2028-29 compared with 2023-24. The Spending Review also revealed revealed the Ministry of Housing, Communities and Local Government would see a 1.4% cut in its day-to-day budget. But the government said councils' "core spending power" would still go up, if they increased council tax by the maximum amount. Separately the government is consulting on directing more money to deprived councils in England from 2026. Councils cannot technically go bankrupt, but if they cannot balance their budget for the financial year, they can issue what is called a section 114 notice. This means they cannot commit to most new spending, and residents could see reduced services, such as fewer bin collections or cuts to libraries. Before 2018, only two councils had issued a section 114. Twelve have been issued since. Birmingham City Council went bust in 2023, with a £760m black hole. It followed Woking Council, Thurrock and Croydon (for the third time). A number of local authorities in England have not issued section 114 notices but are receiving so-called "exceptional financial support", to help manage their budgets. Middlesbrough Council was one of 19 authorities allowed to borrow money to fund day-to-day spending in 2024-25. Why do councils go bust and what happens when they do?
The Independent
07-06-2025
- Business
- The Independent
Labour battles over housing budget as experts warn crisis will get worse
Experts warn of a deepening of the UK's housing crisis due to potential government spending cuts, with funds expected to be stretched by 2026. A struggle is reportedly occurring between the Treasury and housing minister Angela Rayner over budget plans, as Rachel Reeves prepares to outline spending plans until the next election. The Local Government Association reports that over half of councils are running deficits on their housing budgets, while homeless charities warn that new social housing supply cannot keep up with demand. Housing associations are struggling with the cumulative effects of austerity budgets, the Grenfell fire tragedy, and the economic impact of Brexit, Covid-19, and the war in Ukraine, leading to a shortage of funds for new projects. Homeless charities are calling for 90,000 new social housing homes to be built per year, while Labour MPs express concern that cuts to social housing will undermine the party's housing pledge and negatively impact councils.
