One in four English councils could go bankrupt unless they are bailed out by the government in the next two years, a survey has revealed.
Councils are warning of a “worsening crisis” that could result in cuts to vital public services amid a funding gap of more than £2bn next year, according to the survey of chief executives conducted by the Local Government Association.
Louise Gittins, the LGA chair, said local governments were facing an “extraordinary funding emergency” in which more were being pushed into a precarious funding position.
“This is not just about numbers on a spreadsheet,” she said. “Budget cuts needed to plug growing funding gaps will affect the most vulnerable members of society and the services our communities rely on every day.”
To protect local services, the LGA is calling on the chancellor, Rachel Reeves, to stabilise council finances in the autumn budget, including a multi-year finance settlement and a review into changing the local government funding system.
In February an unprecedented total of 19 councils were given government bailout agreements, known as exceptional financial support (EFS), to meet their legal duty to balance their books. This granted councils unusual permission to borrow money and sell land and buildings, which the LGA warned provided “temporary financial relief” but could overload “already struggling councils with further debt and costs in the future”.
The LGA’s survey shows that about one in 10 councils have already discussed receiving emergency support with the Ministry of Housing, Communities and Local Government, with 25% likely to apply in 2025-26 and 2026-27, a figure that rises to 44% for councils with social care responsibilities.
The survey shows that the biggest pressures come from social care, followed by special educational needs and disability (Send) services, school transport and homelessness. The LGA says this is due to inflation and wage pressures, alongside rising demand for services.
The survey also shows that councils are considering reducing hours of operation and services, cutting frontline staff numbers, extending waiting times and increasing fees.
Two-thirds of councils said parks, green spaces and sports would be affected (62%), while almost eight in 10 have identified services and support for disabled adults and older people for cuts. Two-thirds also said services and support for children, young people and families would be affected (63%).
Separately, the County Councils Network (CCN) said 26 of England’s largest councils could declare bankruptcy by 2027 if their multibillion Send deficits were placed on their budgets. A special accounting measure known as a “statutory override”, which allows councils to keep Send debts off their balance sheets, is scheduled to expire in March 2026.
This would triple their funding shortfall overnight and increase the risk of council bankruptcy declarations by 60%, the CCN calculated.
Rising demand and costs have resulted in England’s 38 county and largest unitary authorities in England amassing Send deficits of £2bn this year, a figure projected to rise to £2.7bn in 2025-26.
Research by CCN and the LGA earlier this year identified a £5bn debt crisis resulting from out-of-control spending on special educational needs after a surge in the number of eligible children and reliance on special school placements, particularly in the independent sector.
The CCN is calling on the government to manage councils’ high-needs deficits in the event the override ends, and to change the Send system.
Kate Foale, a Send spokesperson for the CCN, said the survey showed the “immediate financial emergency” facing councils, with only four out of 38 of those surveyed confident they could survive the decade.
She said: “The current Send system works for no one. It does not work for parents, young people and councils alike, and during the last decade demand and costs have spiralled out of control, leaving local authorities with deficits that are unmanageable. This is despite local authorities doing everything in their power to address costs.”
A government spokesperson said: “Despite the inheritance we have been left, the government is focused on fixing the foundations of local government by rebuilding the sector from the ground up.
“This includes providing greater stability to areas by moving towards multi-year funding settlements and ending competitive bidding processes for pots of funding.”
