Four out of every five councils across England, Scotland and Wales are still struggling to balance their books despite modest improvements in local government finances as UNISON’s research reveals a funding gap of almost £4bn – and it’s predicted to rise to over £7bn – as the true scale of local government’s difficulties is masked.
The union’s annual report into council finances, Bridging the Gap, analyses responses to freedom of information requests and financial plans from 368 local authorities. It shows councils are forecasting a combined funding gap of almost £4bn in 2027/28, rising to £7.1bn by the following year. This compares with a predicted funding gap of £4.1bn last year.
A funding gap is the difference between what a council needs to continue providing its current services and what it actually receives.
UNISON says that recent central government settlements have helped ease some of the immediate financial pressures facing councils after more than a decade of austerity.
But fast-rising demand for services such as adult social care, special educational needs and disabilities (Send) and housing, increasing costs and the long-term legacy of underfunding mean most councils still lack the resources needed to restore services and rebuild financial resilience.
Scale of difficulties masked
The union’s report also warns that Whitehall’s growing use of exceptional financial support, which is designed to assist councils facing severe financial challenges, is masking the true scale of the sector’s difficulties.
For example, Birmingham City Council is not forecasting a funding gap in 2027/28 despite declaring itself effectively bankrupt in 2023. UNISON said this illustrates how exceptional funding support can improve a council’s immediate budget position without resolving underlying problems.
At least 35 councils required more than £1.5bn of emergency support in 2026/27 to help them set balanced budgets – a legal requirement. But emergency support often involves council borrowing, which needs to be repaid.
UNISON’s research identifies London as the region facing the largest collective funding gap (£851m), followed by the South East (£785m). It also highlights significant financial pressures in Scotland (£538m) and Wales (£269m).
The report comes as the government has paused much of its council reorganisation programme.
The union said that local authorities need greater certainty over their future funding and structures to plan services and support communities effectively.
‘Stabilisation isn’t recovery’
UNISON general secretary Andrea Egan said: “The figures suggest councils are moving in the right direction, but stabilisation isn’t recovery.
“Four out of five local authorities are struggling to balance the books, and there’s still a predicted £4bn black hole in local government’s finances next year.
“Prime minister Andy Burnham’s government has rightly put devolution and stronger local services at the centre of plans for national renewal.
“Councils now need certainty about their future and the long-term funding to invest in prevention and support workers delivering services.
“Staff have experienced years of pay restraint while helping communities through austerity, the pandemic and the cost of living crisis.
“Fair pay for staff and sustainable funding for local government are not competing priorities. Councils need both if they’re to recruit and retain the skilled workforce communities depend on.”