Local Government in Crisis: The Case for Socialist Transformation

The crisis engulfing local government in England is not merely a product of poor financial management or isolated misjudgments, but the cumulative result of over a decade of underinvestment, rising demand, and short-termism in public spending. While the UK government has recently confirmed over £69 billion in funding for councils in 2025–26, this increase — though significant in appearance — falls short of addressing the structural challenges that local authorities face. As highlighted in Fixing Public Services: Priorities for the New Labour Government, the crisis in local government finance is deep, systemic, and increasingly unsustainable.

At the heart of the issue is the dramatic erosion of local government’s financial base. Since 2010, core spending power (CSP) — a composite measure of local government income from council tax, business rates, and central grants — has been systematically reduced in real terms. By 2024/25, CSP remained approximately 10% below 2010/11 levels after adjusting for inflation. Restoring it to that level alone would require an estimated additional £7.1 billion. Yet, the confirmed 6.8% uplift for 2025/26, while helpful, is unlikely to close this gap, especially in the face of rising inflation and intensifying service demand.

This funding shortfall is not evenly distributed. The way grant cuts were implemented during the austerity years disproportionately impacted the most deprived areas — councils most reliant on central government support. As a result, while better-off councils could offset grant losses through council tax increases, more deprived authorities saw much steeper real-terms declines in funding. By 2024/25, councils in the most deprived decile had experienced an average CSP drop of 24.4%, compared to just 3.1% in the least deprived decile. The government’s failure to update the local authority funding formula since 2013 has further exacerbated these disparities.

Beyond the headline figures lies the structural distortion of council budgets. Demand for statutory services — particularly adult and children’s social care, homelessness prevention, and special educational needs (SEND) provision — has grown significantly. In response, councils have reoriented spending away from ‘neighbourhood services’ like libraries, road maintenance, youth work, and planning. Between 2009/10 and 2022/23, spending on these community services fell by almost a third. Meanwhile, social care and children’s services have ballooned to comprise over two-thirds of local authority budgets, reflecting growing demographic pressures and unmet social needs.

A further sign of systemic dysfunction is the rise in Section 114 notices — effectively declarations of bankruptcy. Since 2018, twelve such notices have been issued by eight councils, including Birmingham, Croydon, and Thurrock. This compares to only two notices in the previous 30 years. These cases are often blamed on poor investment decisions, but the underlying driver is the unsustainable funding environment. Councils have been pushed into commercial ventures and capital-to-revenue transfers just to keep services afloat. The Sunak government’s ‘exceptional financial support’ scheme, which allowed capital budgets to be used for day-to-day spending, rose from £61.7 million in 2018/19 to £1.4 billion in 2024/25 — an inherently unsustainable practice.

The failure to invest in prevention and long-term service infrastructure further compounds the crisis. As preventative services have been cut, demand has intensified in the most expensive, acute areas — notably in social care and homelessness. Capital underinvestment, too, has become endemic. Councils lack the resources to maintain buildings, IT systems, or essential equipment, undermining productivity and exacerbating service inefficiencies.

Crucially, the report warns that if a new government — even one committed to renewal — sticks to current spending plans, service performance will continue to decline. With real-terms cuts of 2.4% expected for many departments, and capital spending set to fall by 1.7% annually, councils will remain on the brink. Even in the context of a £69 billion budget for 2025–26, the mismatch between funding levels and service demands is too great to ignore.

In conclusion, the crisis in local government is a warning about what happens when the state is hollowed out without a coherent vision for long-term public investment. Without structural reforms — including updated funding formulas, investment in prevention and infrastructure, and a commitment to reversing the disproportionate impact on deprived areas — funding boosts will continue to fall short. A bold, redistributive approach to local government finance is not just necessary for administrative sustainability, but for restoring the essential public services that underpin civic life.

My own experience living in Liverpool brings these issues into sharp relief. Liverpool Council Tax bills are set to increase by 4.99%, with 2% of this increase earmarked for adult social care. For Band A properties, which make up the majority of Liverpool households, this equates to an annual increase of £84.04. In a city long impacted by austerity, and where the scars of deindustrialisation remain etched into the urban landscape, the gap between rising need and dwindling support could not be more stark. The lived reality of these policy choices is not abstract — it unfolds daily in the very communities so often spoken about only in statistical terms.

What we are witnessing is not a temporary fiscal imbalance but the concrete expression of capitalism’s contradictions at the level of local governance. The decimation of municipal budgets is not accidental — it is the inevitable outcome of a capitalist system in crisis, one that seeks to shift the burden of that crisis onto the working class through austerity, regressive taxation, and the destruction of social infrastructure.

Councils have been transformed into agents of social triage, forced to ration care, close public facilities, and outsource essential services. This is not ‘poor management’ — it is structural violence. In truth, local government has been hollowed out to serve the interests of capital: preserving investment climates, enabling speculative development, and acting as a buffer to absorb the social costs of inequality.

The Labour Party, despite its rhetoric, has committed to fiscal rules that preclude the investment necessary to reverse these trends. Starmer’s leadership offers no break with austerity logic, merely its more technocratic implementation. Without breaking from the logic of profit, even a Labour government will preside over continued decline.

A mass workers’ party — rooted in trade unions, community campaigns, and socialist politics — is urgently needed. Such a party must fight not merely to "repair" local government but to transform it:

• A massive expansion of public services including the NHS and council services. Reverse all the cuts, kick out the privateers. Bring private social care and childcare facilities into public ownership under democratic control, in order to provide free, high-quality services for all who need them. Expand services for all women suffering violence.

• For local councillors who are committed to opposing austerity and all cuts to local services, jobs, pay and conditions.

• For a socialist NHS to provide for everyone’s health needs, including dental and eye care – free at the point of use and under democratic control. Kick out the private companies! Nationalise the pharmaceutical industry under democratic workers’ control and management.

• Renationalise privatised utilities – including rail, mail, water, telecoms and power – under democratic workers’ control and management.

• Free, publicly funded and democratically run, good-quality education, available to all at any age. Abolish university tuition fees and write off student debt, end marketisation, and introduce a living grant. No to academisation. For all schools to be under the genuine democratic control of local education authorities, school staff, parents and student organisations.

• The right to a safe secure home for all. For the mass building of genuinely affordable, high-quality, carbon-neutral council housing. For rent controls that cap the level of rent. Fair rent decisions should be made by elected bodies of tenants, housing workers and representatives of trade unions. For cheap low-interest mortgages for home buyers. Nationalise the privately owned large building companies, land banks and estates.