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October 2023 - Local Government

Service demand presents the greatest risk to local government finances over the next five years: A survey of more than 100 section 151 officers, treasury managers, finance directors and other senior finance professionals has revealed that almost three-quarters (74%) selected service demand as the greatest risk to local government finances over the next five years, followed by inflation and climate change (59.8% and 12.6%). 

The majority of respondents (96%) also cast doubts upon whether council funding levels were adequate to match demand, with more than a quarter saying they were 'wholly inadequate' (26.8%). A third said they were 'significantly below' the levels needed to keep up with demand, while 36.2% said they were 'somewhat below'. 

The research which included responses to a survey by 127 local authorities found that almost nine in 10 believe that the reason behind why so many local authorities have recently warned that they face issuing a section 114 notice is because of a shortfall in funding levels (87.4%).

Room 151's annual treasury and finance survey asked respondents to select up to three explanations for the recent warnings with almost six in 10 believing it has to do with excessive risk taking (58.3%), followed by the current economic situation (46.5%). 

The research also asked questions around net zero finding that around six in 10 respondents were 'likely' (61%) or 'highly likely' (18.1%) over the next five years to invest significantly in net zero and decarbonisation. 

IT and technology systems were also explored, with almost three-quarters of councils saying they are 'likely' or 'highly likely' to invest significantly over the next five years. Housing development was also cited as an area to invest in, found the survey.

Kelly Watson, head of local government relationships at CCLA Investment Management, said:

“The sector is facing a storm of increasing magnitude, it feels a lot bigger than a perfect storm. All the things around it with increasing service demand, uncertainty over the funding system, economic uncertainty and political shifts.

“It is clear from the survey that not all authorities are taking excessive risk, but there is clear recognition that some authorities, and a number of them, are facing extreme and extraordinary situations with a variety of challenges."

Read the survey here

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