Local councils across England and Wales have issued a stark warning that their financial systems are now at a “breaking point,” with more authorities expected to face bankruptcy in the coming years as they await confirmation of government funding later this month.
Council leaders believe upcoming changes to annual funding arrangements may result in deep cuts, leaving many authorities unable to balance their budgets or deliver essential public services.
So far, 29 councils, including Birmingham, Croydon and Thurrock, have already been forced to request exceptional financial support after failing to meet their statutory financial obligations.
Andrew Jamieson, deputy leader responsible for finance at Norfolk County Council, said he expects more councils to face insolvency once the government unveils the updated funding settlement.
“People think local authorities exaggerate, but the reality is that the system is collapsing,” he warned.
“There simply isn’t enough money — more councils will inevitably reach the point where they cannot fulfil their legal duties.”
The Local Government Association, representing councils nationwide, said demand for vital services continues to rise sharply — particularly in children’s services, adult social care, homelessness support, and transport for pupils with special educational needs (SEND).
The organisation stressed:
“Without a significant increase in funding, councils face the real risk of widespread financial failure.”
As part of a previous spending review, the government agreed on a three-year funding model — however, the final distribution formula has still not been released.
The updated system, known as “Fair Funding Review 2.0,” is expected to be confirmed on 17 December and will reportedly prioritise areas with higher deprivation levels.
Jamieson, however, believes the new structure may leave some high-need authorities worse off. Norfolk, where 26% of residents are aged over 65, relies heavily on local support and would struggle to close its remaining gap without tax increases or service cuts.
Opposition figures claim funding changes introduced under former prime minister Rishi Sunak disproportionately favoured wealthier Conservative-led regions. Labour says its revised model will better protect vulnerable councils and ensure no authority collapses in the 2026–27 financial year.
A spokesperson for the Ministry of Housing, Communities and Local Government said councils have autonomy to set tax levels up to 4.99% without requiring a local vote.
Despite temporary support for deprived regions, many Labour-run councils say difficult decisions remain inevitable.
Last week, Hartlepool Borough Council announced it would freeze council tax but still must plug a £9 million shortfall.
Jamieson noted council tax now provides 60% of Norfolk’s total income, compared with 42% just four years ago, demonstrating how sharply local funding responsibilities have shifted.
Financial experts are also sounding the alarm.
Joanne Pitt, senior adviser at CIPFA, warned that borrowing levels have soared to £1,500 per resident — and continue to rise.
She added that many councils receiving exceptional support are repeatedly extending the same emergency loans to remain operational.
Several authorities are expected to publish first drafts of their 2026–27 budgets next week, including Cornwall Council, which has already planned up to £70 million in cuts following rising pressures in SEND services and elderly care.
Meanwhile, London Councils estimate the capital faces a £1bn gap this year and a combined deficit of £4.7bn by 2029 — with half of all boroughs at risk of emergency intervention.
John Merry, deputy mayor of Salford, described the situation as dire:
“Councils are being pushed into impossible choices — increasing taxes, selling assets, or cutting services people rely on every day.”
Mike Cox, finance chief for Bournemouth, Christchurch and Poole Council, echoed those concerns:
“The lack of stability from central government is making a difficult situation worse. The so-called ‘fair funding’ model is anything but fair.”