Financial uncertainty at UK councils undermining net-zero progress, Government warned

Pictured: Birmingham Town Hall. Birmingham is one of several UK councils to have declared bankruptcy.

UK100 is calling for a fundamental policy reform to provide the necessary empowerment to local leaders, in its response to the Levelling Up, Housing and Communities Committee’s recent report on local authority funding.

The report revealed this week that funding for local councils from council tax, retained business rates, and Government grants has not kept pace with inflation and increasing service demands. This has contributed to a forecasted £4bn funding shortfall over the next two years.

Moreover, in the past six years, eight local authorities have filed for bankruptcy (Section 114), whereas none had done so in the previous 18 years. Furthermore, one in five local authorities express concerns about facing similar circumstances by 2030.

This means councils are stretched in the delivery of vital, day-to-day services – let alone in the development and delivery of plans to cut emissions and improve climate resilience.

UK100’s chief executive officer Christopher Hammond said: “This report by the committee won’t shock anybody. Yet it serves as another damning account of the way councils have been pushed to the brink with piecemeal funding settlements, rising demand and substantial economic changes.

“The mounting overdraft of failure condemns local leaders to manage decline in overstretched services, preventing all but the most ambitious and most well-resourced from accelerating action to achieve the UK’s climate goals.”

Hammond stressed the urgency of a comprehensive funding overhaul, urging the Government to transition away from competitive funding pots towards long-term settlements that empower local authorities rather than constrain them.

Research indicates that councils have redirected up to £130m towards bidding for limited funding pots since 2019, diverting funds from actual delivery.

Hammond added: “Local government funding is an issue that transcends partisan politics. We urge parties of all stripes to work together with local leaders to reform a failed system. With the right resources and responsibilities, every corner of the country has the chance to prosper.”

With a looming general election, UK100 is calling on parties across the political spectrum to prioritise funding reform, recognising it as a non-partisan issue critical to the nation’s net-zero goals.

Last week, leading economists from the London School of Economics and the University of Cambridge urged the Government to increase sustainable public investment to 1% of GDP to address climate change and biodiversity loss, while growing the economy.