Spring Statement 2026: LGA submission

While the sector has much to offer, its contribution is hampered by severe financial pressures. These are rooted in a sustained period of austerity combined with unrelenting cost and demand pressures, particularly in key demand-led services such as children’s social care, adult social care, homelessness and home-to-school transport for children with SEND.  

The clearest evidence of this pressure is in Government’s recent announcement that 35 councils have been granted Exceptional Financial Support (EFS) to allow them to set balanced general fund budgets for 2026/27. The great majority of these councils have social care responsibilities. This means that the sector will enter 2026/27 with 1 in 5 social care councils (22 per cent) dependent on a significant one-off relaxation of the financial framework – an agreement that revenue spend could be capitalised and/or council tax rates can be set above the referendum threshold – to set a balanced budget.   

These outcomes are in line with a recent LGA survey of chief finance officers (CFOs).ⁱ This survey indicated not only that a sizeable group of councils are under immediate pressure, but that many expect their financial positions to worsen over the next three years. For instance: 

The clear message is that despite the increased certainty provided by the multi-year settlement, there is nonetheless real concern in the sector over councils’ capacity to cope over coming years. The rapid growth in the use of EFS, for instance, is clear evidence of a broken system. The Government’s recent announcements for 2026/27 bring the total value of capitalisation directions provided to the sector to £6.9 billion since 2020/21. Based on data provided through our CFO survey we estimate that £1.6 billion of this has been, or will be, resourced through the application of capital receipts, and £5.3 billion through additional council borrowing.  

Councils are clear that a funding model in which an ever-growing number of councils are propped up on a year-to-year basis by selling their assets or by taking on debt – which is now beginning to reach similar proportions to DSG deficits – is clearly not sustainable. Of the 19 councils responding to the survey that had received EFS in the last five years, 17 said that the provision of capitalisations is not an effective method for returning their councils to financial stability on a timely basis. While there was recognition that EFS can provide short-term relief, there was clear messaging from respondents that it does not address the long-term, structural issues that underpin the sector’s current problems. 

Dedicated Schools Grant deficits and SEND reform 

The Schools White Paper offers a vital opportunity to address the SEND system, that for too long has been failing children, young people and their families. Substantial reform is desperately needed so that they get the support they need. As part of this the LGA is pleased that the Government shares our aspiration that children with SEND who require support do so in a mainstream setting where appropriate; and that all children can reach their potential. Councils want every child to get the support they need without parents and carers necessarily having to apply for a statutory plan. 

For improved mainstream inclusion to be successful, all settings need to be empowered and resourced to meet the needs of children and young people with SEND, with a workforce that has the capacity and right skills. Councils have a key role to play and will need powers to lead local SEND systems and to hold health and education partners to account, to make sure they are meeting children’s needs. The LGA looks forward to working with Government and partners on the White Paper and SEND consultation to ensure it meets the needs of children and their families.  

It is also important that the proposed reforms improve financial sustainability for councils, so that the right support for children can be sustained both now and into the future. For instance, our CFO survey shows that even if their DSG deficits had been written-off by the end of the statutory override in March 2028, 94 per cent of respondents said they would overspend their SEND budgets in 2028/29. There is a clear risk that councils’ deficits will simply return in the absence of effective reform. 

The Government’s recent announcement of its plan to write off 90 per cent of historic DSG deficits is welcome as it removes the immediate threat of insolvency for many councils. It is also recognition by Government that these costs are not of councils’ making and have accrued due to a broken system that is urgently in need of reform. 

However, councils continue to face significant challenges on this issue. The 90 per cent write-off for debt up to and including 2025/26 implies that councils will have to manage a residual debt of around £500 million. The OBR has forecast that new deficits of £8.6 billion will then accrue over 2026/27 and 2027/28. While Government has not confirmed its plans for this accruing debt, a 90 per cent write-off of this accruing debt would leave the sector with a further £860 million in estimated residual debt.  

Clearly this outcome is better than the estimated £14 billion faced by the sector prior to the write-off, but the sector still faces the pressure of managing the residual historic debt and the uncertainty on Government’s plans for the accruing debt. 

Housing Revenue Account (HRA) pressures 

Government has also taken steps to address growing pressures in councils’ HRAs. The 10-year rent settlement and the introduction of rent convergence, albeit it on a delayed and phased basis, are welcome and are likely to strengthen councils’ HRAs. However, these developments have not fully resolved the issues faced by the sector. 

For instance, our CFO survey was clear that even with rent convergence there are significant pressures facing councils’ HRAs. Not all responding councils (80 per cent) are confident that they can balance their HRA budget over the next five years. Likewise, not all were confident (73 per cent) that they can repair and maintain existing stock to the necessary levels or that they could invest in planned new build programmes (59 per cent). Clearly, despite Government’s welcome interventions, many councils still have concerns about the financial sustainability of their HRA, their ability to maintain existing stock and the capacity to invest in new build. 

Workforce