By Political Correspondent | 4 April 2025
A senior civil servant has rejected growing concerns that England’s local authorities are on the brink of financial collapse, insisting that ongoing reforms will place councils on a sustainable footing for the future.
Sarah Healey, the permanent secretary at the Ministry of Housing, Communities and Local Government (MHCLG), told MPs on the Public Accounts Committee that while financial pressures are significant, fears of a system-wide collapse were overly pessimistic.
Her comments follow warnings from the Local Government Association (LGA), which estimates that councils in England face a funding gap exceeding £8 billion by 2028/29. A recent LGA survey also found that almost three-quarters of councils anticipate difficulty in balancing their budgets for the 2025/26 financial year.
Yet Ms Healey struck a more hopeful tone. “I’m an optimist,” she told the committee. “The only way we can ultimately fix the foundations is by making sure local government is in the right shape to succeed in the future.”
She added that key reforms, including overhauls to funding distribution and structural reorganisation, were essential: “There’s no part of the programme we don’t think we can try to achieve. We believe we need to achieve it all.”
Reorganisation amid crisis
The Government’s plans, as outlined in the English devolution white paper, propose the replacement of smaller local councils with larger unitary authorities that would serve populations of at least 500,000. The intention is to reduce bureaucracy, cut costs, and streamline decision-making.
But MPs on the committee expressed concern that pushing ahead with structural reforms while many councils are already in financial distress could be risky.
Sir Geoffrey Clifton-Brown, the committee’s chair, used an industrial analogy to illustrate his concerns. “The nuts and bolts of local government are rusting through and about to bust,” he said. “On top of that, you want to build an entirely new building of local government reorganisation with those rusted-through nuts and bolts. My worry is the whole thing is going to collapse. Am I being pessimistic?”
In response, Ms Healey maintained that systemic change was necessary to ensure the viability of local government in the long term.
Urgency and tough choices
Will Garton, MHCLG’s director general for local government, supported Ms Healey’s position, pointing to research by PwC that identified potential savings of £2.9 billion over five years from council reorganisation.
“We just need that money. We don’t have a choice. We have to do both—reform and manage the immediate crisis—because the situation is so serious,” he said.
However, the department acknowledged that progress would not be straightforward. Nico Heslop, director of local government finance, said Deputy Prime Minister Angela Rayner and local government minister Jim McMahon had been “absolutely clear” that there were no quick fixes.
More Read
“There will be difficult choices, and we recognise that councils are already making them,” Heslop said. “We think it’s the right direction, but it won’t be without noise or difficulty.”
Financial strain mounting
Currently, 30 councils are receiving exceptional financial assistance from the Government. The number has raised concerns about a broader systemic failure if reforms and new funding mechanisms are not implemented swiftly.
The Government is consulting on new funding reforms set to begin in 2026/27. These include the introduction of multi-year funding settlements to improve stability, adjustments to the relative needs formula used to allocate funds, a reset of business rates retention, and the consolidation of various funding streams to simplify the system.
Ms Healey concluded: “We don’t underestimate the complexity, difficulty, and genuine capacity constraints in councils to get all of this done. But we believe it needs to be done if local government is to succeed.”
The coming months are likely to prove pivotal for England’s councils, as they await clarity on long-term financial support and how proposed reforms will reshape the landscape of local governance.
