County councils ‘running out of road’ to stop insolvency due to £4bn funding gap

England’s largest councils are “running out of road” with almost half saying they are unsure if they can balance their budgets next year.

The County Councils Network (CCN) warned on Wednesday that England’s 41 county and unitary councils face an estimated budget gap of £4 billion over the next three years which they will be unable to plug with more cuts.

CCN vice-chairman Barry Lewis said the scale of cuts needed to fill the budget gap is “simply unsustainable” after “a decade of continuous cutbacks”.

This year alone, councils are forecasting a total budget deficit of £603 million despite making cuts of more than £1 billion, with one in 10 unsure if they can balance their budget.

That figure rises to four in 10 next year, when councils again expect to overspend by more than £600 million, and six in 10 are uncertain if they will be able to balance their budgets in 2025/26.

The warning follows a string of councils issuing Section 114 notices, effectively declaring bankruptcy.

Birmingham, England’s largest local authority, issued a Section 114 notice in September following similar declarations by Woking, Thurrock, Croydon, Northumberland and Slough.

Mr Lewis said the soaring cost of children’s social care is the main cause of councils’ budget troubles, accounting for around half of the forecast overspend, and called for Chancellor Jeremy Hunt to provide more support in this month’s Autumn Statement.

He said: “The number of vulnerable children requiring care has risen dramatically post-pandemic, while inflation and a broken provider market in statutory care placements mean councils face no choice but to pay spiralling fees.

“County authorities will do all they can to bring down costs over the coming period and have pencilled in £2 billion of unprecedented further savings to help balance the books. But after a decade of continuous cutbacks, the scale of reductions and use of reserves needed to fill the funding shortfall is simply unsustainable.

“Last year the Chancellor stepped in with much-needed additional resources for adult social care. We now need the same priority to be given to vulnerable children, providing emergency funding this year and next.”

The 41 councils included in the CCN analysis cover 26.9 million people, or 48% of England’s population, and several have already sounded alarms over their finances.

Derbyshire County Council said in September that it expected to overspend its budget by £46 million and agreed wide-ranging cuts to prevent this.

Other county councils warning of significant overspends include Shropshire with £37.6 million, Suffolk with £22 million and Hertfordshire with 16.4 million.

Overall, councils expect to make cuts worth more than £2 billion over the next three years, but still forecast a total budget gap of just under £2 billion over the same period.

Mr Lewis said: “Birmingham’s recent financial difficulties and issuing of a Section 114 were undoubtedly made worse by the council’s performance and governance. But, unless we act now, this analysis shows that other well-managed councils are running out of road to prevent insolvency.”