When “exceptional” becomes routine: The truth about council finances

Exceptional Financial Support is no longer exceptional – and that tells us something fundamental about the system. 

Exceptional in name only 

Exceptional Financial Support (EFS) is one of the mechanisms used by the government to support councils that have hit financial difficulties. It was designed to do what its name suggests: provide a last-resort mechanism for a council facing an unusual and unmanageable financial shock. It was never meant to become a normal feature of the annual local government finance cycle. 

Yet in 2026/27, 35 councils are receiving around £1.5 billion of EFS. The year before, 30 councils had support agreed. When more than one in ten English councils needs an “exceptional” intervention simply to set a balanced budget, the word exceptional starts to lose its meaning. 

Nor is EFS a generous cheque from Whitehall. It is typically a capitalisation direction: permission to use capital receipts or borrowing to meet day-to-day revenue costs. In plain English, councils are often selling assets or taking on debt to pay today’s bills. That may keep the legal budget balanced, but it does not make the underlying pressure disappear. 

In short, using EFS as a funding mechanism for revenue spending is akin to seeing a distant light at the end of the tunnel and opting to build more tunnel. 

This is not a story about councils forgetting how to manage 

There have undoubtedly been individual failures of governance, commercial judgement and financial control. Those should not be minimised. But it is intellectually lazy – and demonstrably wrong – to explain the sector-wide rise in EFS as though dozens of councils have simultaneously become badly run. 

CIPFA’s analysis of the current cohort points in a different direction. Social care demand was the main driver for 60% of councils seeking EFS; homelessness and temporary accommodation led for 14%; and SEND pressures featured prominently too. These are statutory services, shaped by demographics, market prices, housing supply and national policy. They cannot simply be switched off when the spreadsheet turns red. 

The financial context matters. During the 2010s, councils’ core funding per person fell by 26% in real terms, including a 46% fall in funding from central government. Across the period from 2010/11 to 2024/25, core funding remained 18% lower per person in real terms. Another analysis put the cumulative real-terms reduction in English local authority funding over 14 years at £13.9 billion. 

That is a very substantial saving extracted from the system. Councils delivered it while continuing to collect bins, maintain roads, protect vulnerable children, care for older and disabled adults, inspect food premises, process planning applications, administer elections and perform hundreds of other functions. 

Doing more with less 

The response has not just been salami-slicing. Councils have redesigned services, consolidated back offices, shared senior teams, moved transactions online, automated routine work, rationalised estates and used data to target interventions earlier. Cloud platforms, digital self-service, remote working, assistive technology and, increasingly, better use of AI have reduced transaction costs and enabled residents to access many services around the clock. 

There have also been mergers and structural reforms. Shared services and new unitary councils have removed some duplication, while modernisation programmes have changed how councils commission care, manage demand and work with health, police and voluntary-sector partners. 

These gains are real. But efficiency is not an infinitely renewable resource. Once a reception desk has closed, a management layer has gone, a system has been replaced and a building has been sold, the same saving cannot be banked again next year. Transformation can help councils use resources better; it cannot compensate indefinitely for a structural gap between statutory demand and available funding. 

The consequences are visible in the spending choices councils have had to make. While spending per person on children’s social care rose, spending on culture and leisure, housing, planning and development, and transport fell by more than 40% during the 2010s. These are not efficiency gains – they are cuts to services that citizens across the country value. 

Reorganisation was never the answer 

The recent pause to the local government reorganisation programme should prompt a more honest debate about what structural change can and cannot achieve. The Government has withdrawn decisions in Essex, Hampshire, Norfolk and Suffolk and paused or reviewed plans across a further 16 areas while it considers legal advice and its wider priorities. 

There can be a case for simpler structures. Removing duplication, clarifying accountability and creating organisations with greater scale may produce benefits in the right places. But LGR was never going to solve the central problem. 

Redrawing boundaries does not reduce the number of older people who need care. It does not create specialist SEND placements, lower private-sector rents or build social housing overnight. It does not erase accumulated deficits. Indeed, reorganisation carries significant transition costs and consumes precisely the senior capacity needed to stabilise services and finances. 

A larger council may be able to manage pressure differently. It cannot reorganise demand out of existence. 

The pressures are growing, not receding 

Adult social care illustrates the challenge. Councils spent £23.3 billion net on it in 2023/24, and the Health Foundation has estimated that another £8.3 billion will be needed by 2032/33 simply to keep pace with demand. The population is ageing, demand among working-age adults is rising, needs are becoming more complex and workforce costs continue to increase. 

SEND has become another major fault line. Costs have outstripped the dedicated funding available, leaving councils with large accumulated deficits. Central government has now committed to taking responsibility for much of the historic problem, but the continuing growth in need and placement costs still has to be addressed. 

Temporary accommodation tells the same story. At the start of 2025, 131,140 households were in temporary accommodation – 156% more than in 2010. Councils spent £2.84 billion on it in 2024/25, with net expenditure of £1.43 billion after subsidy and household contributions. By March 2026, the number of households had reached a record 135,600. These costs are driven by a shortage of social and affordable homes, high private rents and benefit rules that leave councils carrying the gap. 

Better procurement, digital tools and earlier intervention all matter. But none can repeal demographics, manufacture care workers, create specialist school places or conjure affordable homes from thin air. Without sufficient national funding and reform of the underlying systems, demand-led statutory services will continue to consume an ever-larger share of council budgets. 

A settlement designed for today 

The first multi-year settlement in a decade and the updated assessment of relative need are welcome steps. But redistribution alone does not fill the gap if the overall pot is too small. Moving scarcity from one council to another is not reform. 

What local government now needs is a genuinely fair and sustainable settlement: one that reflects current population, deprivation, service demand, local tax-raising capacity and the real cost of delivery; one that funds statutory pressures properly; and one that gives councils long-term certainty to invest in prevention and transformation. 

Crucially, it must leave no council worse off. Fairness cannot mean destabilising councils that have planned responsibly around the system government gave them. Transitional protection should not be a temporary political sticking plaster, but a core part of moving to a better model. 

Nor should the answer be another reworked version of the architecture built under the Blair and Brown governments – adjusted, patched and overlaid so many times that the connection between need and funding has become opaque. The world councils serve has changed profoundly since then. The funding system must change with it. 

Exceptional Financial Support can prevent an immediate failure. It cannot be the operating model for local government. If “exceptional” support is becoming routine, the exceptional thing would be to keep pretending the system itself is not the problem.