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Government Eases Budget Regulations for 29 English Councils

The UK government has announced a significant change to budgeting protocols, granting 29 councils in England the ability to adjust their financial strategies to balance their budgets for the upcoming year. This marks a notable increase from the 19 councils that sought similar flexibility this year, highlighting the ongoing economic challenges faced by local authorities.

Under the new provisions, these councils will have the option to utilize Treasury loans or funds derived from asset sales, a departure from the standard regulations that prevent such practices for day-to-day expenditures. This adjustment aims to provide immediate relief as councils navigate persistent financial difficulties.

The announcement comes at a time when local leaders express concerns that their available resources—estimated at £69.4 billion for the next fiscal year, assuming maximum permissible increases in council tax—are insufficient to meet the rising costs associated with essential services, particularly in areas like adult social care and special educational needs. These sectors have increasingly consumed a larger portion of council budgets.

Confirming this move, the government highlighted that the 29 councils collectively seek approximately £1.5 billion under these relaxed financial support measures, initially introduced in response to the economic impacts of the Covid-19 pandemic. Detailed plans from individual councils regarding their budgeting strategies will be released later in a series of official capitalisation directions.

Included in the list of councils seeking assistance are six that have previously declared insolvency, namely Birmingham, Croydon, Woking, Nottingham, Thurrock, and Slough, which had also requested financial support in the preceding year. Newcomers to this list include councils such as Enfield, Worcestershire, West Berkshire, Trafford, Barnet, Solihull, and Halton, evidencing a broader trend of escalating financial pressures.

A Temporary Solution

The permission granted to these councils allows them to allocate funds from selling assets—land and buildings—to cover routine expenses. Normally, regulations permit the use of such funds exclusively for initiatives aimed at reducing operational costs, such as streamlining administrative functions or transitioning services online.

Additionally, councils will now have the ability to manage their spending through Treasury-backed loans, traditionally reserved for long-term investments. In a move to ease financial burdens further, the government has eliminated the 1% surcharge previously attached to these loans, which local government minister Jim McMahon describes as a reflection of the government’s commitment to collaboration rather than punitive measures.

The surcharge had been criticized by some council leaders, who likened it to interest rates seen in pay-day loans, suggesting it served as a deterrent against seeking government support in favor of self-financing through asset sales.

Reconsidering Funding Models

The umbrella organization London Councils voiced concerns regarding the government’s decision, characterizing the additional flexibility as a “short-term measure” that complicates long-term fiscal planning by adding more debt obligations. In contrast, the government maintains that reforms—such as allowing multi-year budget frameworks—will aid councils in attaining greater financial stability.

Furthermore, consultations are underway to establish a stronger correlation between council funding and levels of deprivation starting in 2026, which is part of a broader initiative to reform local government financing. The government contends that such changes would privilege councils in under-resourced communities that struggle to generate revenue through local means. However, this new funding formula could ignite political disputes, particularly among Conservative-led councils in rural regions that may feel disadvantaged by the changes.

Source
www.bbc.com