LGA: Council emergency bailout deals risk becoming "normalised" as budget overspends continue to rise

Emergency government bailout agreements for councils are at risk of becoming “normalised” as costs continue to outstrip available resources and push many to the financial brink, the Local Government Association (LGA) warns ahead of the Autumn Budget. 

New analysis by the LGA ahead of the November 2026 fiscal event reveals that councils across England are at risk of substantial budget overspends in 2025/26 across adult social care, children’s social care and homelessness services. 

Councils are at the heart of every national priority from building homes and boosting inclusive growth to caring for children and supporting older and disabled people.  

It is therefore critical that government works with councils to reform key services, such as SEND and adult social care. The LGA’s Autumn Budget submission sets out how public service reform – including a focus on prevention, combined with genuine devolution, and the development of strong digital and technology foundations to drive productivity and efficiency – is critical to help councils manage and reduce demand for acute services. 
 
However, it said the country cannot deliver growth, reform public services or improve life chances without fixing local government finances.  

Pressures remain stark and worsening. Between 2022/23 and 2024/25, despite increased levels of budgeted spend, councils overspent annually on average by 5.2 per cent on adult social care; 14.2 per cent on children’s social care; 25.1 per cent on home-to-school transport for children with SEND; and 51.9 per cent on homelessness. 

In 2025/26, planned budgets again show steep rises – 9.0 per cent for adult social care, 10.1 per cent for children’s social care and a staggering 38.8 per cent for homelessness. However, despite the continued growth in budgeted spend, data for councils’ Q1 spending across these three services indicates that 2025/26 budgets are already under pressure and that there is a clear potential for overspends in line with the previous three years in these services.  

Overspending in these demand-led services means councils are increasingly being forced to rely on emergency measures such as in-year cuts to spend for other services and drawing on depleting reserves to balance their books. This is not financially sustainable. 

The LGA said that 29 councils (including nearly one in six of all councils with social care duties) needed Exceptional Financial Support (EFS) agreements this year to borrow, sell assets or increase council tax above national limits simply to keep essential services running. This is a substantial increase on the number last year and a clear warning sign of systemic failure. 

The LGA said current EFS arrangements, which allow capitalisation of revenue costs, should be reviewed to ascertain whether they are achieving the objective of supporting councils in returning to financial sustainability. 
 
As part of its Autumn Budget submission to the Treasury, the LGA sets out how councils are already leading innovation that saves money and improves lives. Wigan is using care technology to help older residents live independently. Central Bedfordshire’s investment in digital skills and care tech has saved nearly £800,000 while improving outcomes. From Bath’s riverside regeneration to Folkestone’s new garden town, councils are unlocking thousands of new homes and billions in economic potential. 
 
It is calling for the Chancellor to:  

• provide councils with a significant boost in resources to prevent widespread financial failure and empower councils to unleash growth and service reform at scale. It is good that government has proposed a range of local government financial reforms, including the guarantee of multi-year settlements and a move away from fragmented, ring-fenced grants and reducing reliance on competitive bidding. Greater financial certainty and a simpler funding system are important. However, all councils need adequate resources to meet growing cost and demand pressures. 

• ensure the Government’s Fair Funding 2.0 reforms do not put the sustainability of individual council’s finances and services further at risk by ensuring that robust transitional arrangements are put in place to protect councils from both cash-terms and real-terms cuts where necessary. 

• address the £5 billion SEND deficit, which continues to hang over local budgets. Writing it off, as part of the wider SEND reform programme, would give councils and schools the chance to focus on improving provision rather than firefighting finances. 

The submission also demonstrates how investing in and empowering councils would allow them to deliver to their full potential both to support local communities and also to address national priorities. 

For example, research shows that devolving and pooling employment and skills budgets locally could boost productivity and get more people into work. Allowing local authorities to also have access to low-interest loans available for social housing providers would support them to further increase the supply and quality of affordable housing.   

Cllr Louise Gittins, LGA Chair, said:  

“Council costs and demand for services are soaring – especially in children’s and adult social care, homelessness, and SEND home to school transport – leaving significant potential overspends this year. 

“The consequences are visible everywhere. Fewer neighbourhood services, reduced investment in prevention, and growing pressure on those who rely most on local support.  

“When a system relies on emergency bailouts to function, it is fundamentally broken. 

“The country’s success depends on places like Barnsley, Buckinghamshire, Cambridge, and Cumberland being able to thrive. Councils have the legitimacy, local knowledge and ambition to make that happen. But they need a fair financial foundation to stand on. 

“If the Government is serious about growth, public service reform and opportunity for all, it must start with councils – because when councils succeed, the country succeeds.”