Almost one in five councils granted ‘exceptional’ financial support to help balance books

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The government has granted almost one in five English councils ‘exceptional financial support’ (EFS) to help them balance their books in 2025-26.

Twenty seven of the 153 authorities with social services have been granted EFS, up from 17 last year, reflecting the scale of pressures facing councils in areas including adults’ and children’s services.

The dispensation means the authorities will be able to borrow or use receipts from the sale of assets to fund day-to-day (revenue) expenditure; typically, these may only be used to fund capital projects, such as new buildings or infrastructure.

Requirement to balance books

By law, councils must balance their books each year. EFS is generally designed to prevent authorities from having to issue a so-called “section 114 notice”, declaring that they are unable to set a balanced budget, a move typically followed by deep cuts to non-statutory services, often overseen by government troubleshooters.

The 27 authorities include all six of those who have been permitted to raise council tax by more than 4.99% without having to gain the consent of local citizens through a referendum: Birmingham, Bradford, Newham, Somerset, Trafford and Windsor and Maidenhead.

Birmingham has been granted the highest level of EFS for 2025-26 (£180m), followed by Croydon (£136m) and Bradford (£127.1m).

Mixed views on generosity of council finance settlement

There are mixed views on the generosity of the government’s finance settlement for councils for 2025-26, which was confirmed earlier this month.

According to think-tank the Institute for Fiscal Studies (IFS), if all authorities increased council tax by the maximum permitted without a referendum, funding for English councils would rise by £4.3bn in 2025-26, which it described as a “substantial cash-terms increase”.

Authorities would also be able to make use of an extra £1.1bn through a new scheme designed to charge producers for their use of packaging. Excluding £470m allocated to help councils meet the costs, for their own staff, of April’s rise in employer national insurance contributions (NICs), the IFS has said this amounted to a maximum 6.4% rise in resource for authorities in 2025-26, after taking account of inflation.

However, local government leaders have said the funding was not sufficient to address pressures, particularly in social care, driven substantially by the costs of compensating care providers for the rise in employer NICs and this year’s 6.7% increase in the national living wage (NLW).

Government ‘under no illusion about state of council finances’

Announcing the exceptional financial support package today, local government minister Jim McMahon said: “We are under no illusion of the state of council finances and have been clear from the outset on our commitment to get councils back on their feet and rebuild the foundation of local government.”

He said ministers were encouraging authorities to “come in confidence where needed to seek help and be assured we will offer a relationship of partnership – not punishment”.

However, London Councils, which represents the capital’s boroughs, raised concerns about the use of EFS to shore up authorities’ finances.

Exceptional financial support ‘a misnomer’

“Exceptional financial support is a misnomer – it is no longer exceptional and it fails to provide sustainable financial support, instead forcing local authorities to borrow to maintain basic statutory services,” said London Councils chair Claire Holland. “Rather than resolve the crisis, EFS is a short-term measure that leaves us with more long-term debts to worry about.

“We desperately need a sustainable solution to the crisis in local government finance, which has been years in the making. We welcome the government’s commitment to working with local authorities to reform a funding system which is fundamentally broken and to bring long-term stability to council finances.”

The government’s planned reforms will see councils given multi-year finance settlements and more flexibility of how they use their money, and funding formulae changed to better reflect need.

While the first two measures have broad support across councils, the latter has divided opinion, with county authorities fearing they will be penalised by a shift to a more deprivation-based distribution of funding.

This has been foreshadowed in the 2025-26 settlement by a £600m ‘recovery grant’, whose distribution is based on councils’ deprivation levels.