Devolution Diaries: Who picks up the tab?
Will reorganisation trigger the overhaul we need to fix local government finances?
The message from Whitehall is clear: council debt will not simply be written off, nor will the slate be wiped clean as part of the reorganisation of local government in England. While reorganisation should eventually pay for itself via streamlined unitary authorities able to utilise economies of scale, local government will be missing a trick if we think these are the only prizes at stake.
Yet, if we let the fundamentals of local government finance go on unchanged (they’ve certainly not been unchallenged), we risk a breakdown in services for residents’ and a broken social contract which will open the door to the worst kind of politics.
Speaking at the LGA’s Financial Planning and Transformation Webinar last month, Mark Read (Service Director and Deputy Chief Operating Officer at Cornwall Council) shared his reflections on Cornwall’s experience of becoming a unitary authority back in 2009. The process of establishing a new unitary authority in Cornwall took 20-months (in case you were wondering) …
Cornwall received no extra resource or capitalisation to cover the transition costs. Indeed, as is the case now, the only route to access additional funds is via Exceptional Financial Support (which as we all know is far from exceptional).
This year Ministers granted £1.4bn for 2025/26 to nearly 1 in every 5 Councils via the Exceptional Financial Support (EFS) programme. Roughly half of these Councils didn’t require EFS the previous year. A notable example beyond Birmingham and Nottingham is Thurrock, which received a total £482 million in 2025/26 (inc. revisions to previous years), and where the Council’s debt and finances have featured in many a discussion amongst Councillors in Essex. Leaders in my home county recognise the impact of Thurrock Council’s debt on discussions around South Essex’s reorganisation.
Further south, the financial implications of reorganisation have featured prominently in discussions between local leaders in Hampshire, Sussex and particularly Surrey.
The western part of Surrey faces a challenge with Woking and Spelthorne, both financially embattled councils, potentially being merged into the same council along with their neighbours. These two boroughs alone face a combined debt of over £3 billion, with the Treasury resisting any calls for central debt relief for now. We await their final reorganisation plans in May, when Surrey’s districts and its County may still be pushing for directly competing options and we will learn who is to pick up the tab.
Graph data complied from here
However, it’s not simply the case of debt isolated to one or two Councils. Councils in England face a funding gap of up to £8 billion by 2028/29 without real reform to local government finances.
Thinking back to my career before Cratus as a secondary school teacher, I witnessed first-hand how the lack of properly funded services entrenched barriers (in and outside the classroom) for the SEND students I taught. Delays in young people receiving Education, Health and Care Plans (EHCPs) or accessing other local authority services were commonplace. The breakdown of that social contract was dispiriting, both for each young person I taught and the adults in their lives fighting hard to care and support them. As a teacher it was demoralising despite working alongside hardworking and inspiring colleagues – I suspect Council Officers and Leaders (not to mention parents and young people) find it to be similarly dispiriting.
I was shocked to read the Local Government Association recently discovered that over half of English Councils who support SEND students risk insolvency once temporary accounting measures excluding SEND-related deficits from balance sheets come to an end next year. While we expect a SEND related White Paper this year, local leaders worry whether it will do enough in time to protect their finances.
For me, the promise of local government reorganisation and devolution is the transformation of services for local communities. Financially this must be sustainable – which necessitates overhauling local government finances. In the case of SEND provision, and many other areas of children and adult social care, I hope it will bring about multi-year settlements and greater power and local decision making in determining how high needs provision capital allocations are spent locally.
There are many reforms to local government finance I hope this reorganisation will trigger – but these must keep the needs of communities in mind so to rebuild the social contract within our country – led by a new system of local government in England.
Cratus’ Devolution Diaries will continue to reflect and provide insights about Local Government Reorganisation and the Devolution agenda. In the meantime, get in touch if we can help you and your business navigate the changes.
