Ministry of Housing, Communities and Local Government permanent secretary Sarah Healey has told MPs her department is “extremely concerned” about the financial pressures councils are under.
Her comments came at a meeting of parliament’s Public Accounts Committee exploring a recent National Audit Office report on the financial sustainability of the sector, which called for a “whole of government response”.
The NAO report highlighted that while funding for English councils has increased by 4% between 2015-16 and 2023-24, it had failed to keep pace with population growth and demand for services – or the cost of delivering services to those most in need.
It also noted increased numbers of councils declaring themselves unable to balance their budgets and requesting “exceptional financial support”.
At today’s session, Healey was asked whether the current predicament of councils – which comes alongside the ongoing crisis in local audit, which has seen significant numbers of councils fail to submit audited accounts on time – was giving her sleepless nights.
“Obviously, we think there are very, very serious pressures in local government," the perm sec replied. “We are extremely concerned about the financial state of local government and very, very worried about the financial situation some councils find themselves in.”
Healey said MHCLG ministers had been “absolutely plain” that action is required to address “systemic problems” that local government has been experiencing in recent years.
“There are obviously some areas of the country which have been particularly struggling; some councils which have not been able to balance their budgets in recent times, and that number has been going up," Healey said. “So all of those issues, as well as the overall position of the sector, give us concern.”
Pressed on whether the situation is causing her to lose sleep, Healey said it was not the case.
“I try not to have sleepless nights," she said. "I feel that if I’m well slept, I’m better placed in order to deal with the sorts of challenges that we have to deal with on a day-to-day basis.”
In the session she acknowledged the issues posed by the audit crisis, but insisted that MHCLG has other channels for keeping track of individual councils’ performances.
“No council individually has come to us with an issue of financial distress that has been a surprise to us,” she told MPs.
She acknowledged that there were “evidently” concerns about the financial state of authorities other than those that have already made so-called Section 114 declarations, confirming they are unable to balance their budgets or those that have already sought exceptional financial support.
Healey told MPs it was no-longer the case that poor management was the exclusive reason for councils getting into financial distress.
“Demand levels are going up, even in councils that are in relatively good financial positions,” she said. "That’s why we’re now in a position where we’re seeing serious financial problems in councils not because of serious mismanagement – as we have done in the past – but simply because of the pressures that they’re under.”
She insisted “very significant” work is under way on reform.
February’s NAO report said 43% of local authorities had indicated they would be at risk of making a Section 114 declaration during the 2025-26 financial year if plans to end a “statutory override” on spending related to high-needs children go ahead.
Council reorganisations ‘will be a distraction and might not save money’
Earlier in the session, London School of Economics local government expert Prof Tony Travers told MPs that plans for a new wave of local-government reorganisation aimed at streamlining services and saving money would be a “distraction” for under-pressure councils.
The proposals, set out in the English Devolution White Paper, seek to create new “unitary” councils in areas currently served by both county and district authorities in “two tier” areas such as Essex, Kent and Derbyshire.
“Inevitably it will be a distraction, and there will be short-term costs,” Travers told MPs. “I think there’s no question that whatever the long-term potential benefits, it will be a distraction and it will cost money in the short term.”
Travers said local authorities had a lot on their plates at present and questioned the logic of adding county-level reorganisation to the to-do list for remaining two-tier areas.
“It’s an enormous amount for individual local authorities, many of which are having to consider quite substantial reorganisation structurally," he said. “Despite all the excellent consultancy work on the subject, I’m not 100% convinced reorganisations actually save money. But, we’ll see.”