27JUL

MHCLG backs 36 councils with £1.74bn

3 min read

11:11UTC

MHCLG agreed emergency financial support in principle for 36 English councils for 2026-27, worth roughly £1.74bn. Two years earlier the figure was 18 councils.

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Key takeaway

Emergency support for councils has doubled in two years without crossing any legal threshold at all.

The Ministry of Housing, Communities and Local Government agreed Exceptional Financial Support in principle for 36 English councils for 2026-27, worth roughly £1.74bn⁠¹. Exceptional Financial Support, or EFS, is permission to plug a hole in day-to-day running costs using borrowing or asset sales, repaid over as long as twenty years. In practice it converts this year's bin collections and social care into two decades of debt. The rubbish taken away this week can end up being paid for into the mid-2040s.

Two years earlier, 18 authorities took £1.4bn. For 2025-26, 19 councils had preliminary approval to capitalise £2.5bn. Then 36⁠². Six of the 36 are already under statutory intervention, meaning central government has taken direct control of their finances.

The allocations run from Shropshire at £121.0m and Croydon at £119.0m down to the Isles of Scilly at £0.926m⁠³. That spread is worth noticing: this is not a story about a few notorious failures in big cities, it reaches a council of about 2,000 people off the Cornish coast. Local Government Chronicle reported an interim figure of 35 councils and £1.5bn on the day of the announcement, and the government guidance page has since been updated with the higher count⁠⁴.

A bank in trouble meets a resolution regime built after 2008: capital floors, stress tests, statutory powers to force losses onto creditors. A council in trouble meets a minister and a negotiation. Nothing in the EFS process has a threshold that fires automatically, which is exactly why the authority count can double in two years without any statutory trigger being crossed. Our declared trigger for this ledger, set today and carrying no legal weight whatsoever, is more than 40 authorities on support for 2027-28.

Deep Analysis

In plain English

A council budget has two parts: revenue, day-to-day running costs like social care and bin collections, and capital, spending on buildings and long-term assets, usually paid for with borrowing. Councils are legally required to balance the revenue budget every year; they cannot run an ordinary overdraft the way a business can. Exceptional Financial Support (capitalisation direction) is government permission to treat some of this year's revenue shortfall as if it were a capital cost, borrowed and repaid over up to 20 years. It solves this year's arithmetic problem but creates a smaller repayment-adjusted budget every year afterwards, which is why the number of councils needing it has kept climbing rather than falling.

Deep Analysis

Root Causes

Adult social care and special educational needs and disabilities (SEND) transport and support costs have grown faster than the core local government finance settlement, which still leans on council tax and retained business rates rather than a fully needs-based formula. A council facing a statutory duty to provide care cannot simply decline to spend, unlike discretionary services.

Capitalisation directions let a council borrow to cover a revenue shortfall and repay over up to 20 years through minimum revenue provision (MRP), a fixed annual budget line. Each new direction adds to that repayment schedule, so a council granted support this year carries a slightly smaller revenue budget for services every year until the mid-2040s, making the following year's gap marginally harder to close without new support.

What could happen next?

Consequence
Each capitalisation direction locks in a fixed annual repayment (MRP) for up to 20 years, permanently shrinking the affected council's discretionary revenue budget regardless of future funding settlements.
Risk
If the authority count on Exceptional Financial Support keeps rising at the recent pace, the trigger of 40 authorities for 2027-28 declared in this briefing's register could be reached within a single further funding round.

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: Liverpool City Council's mid-1980s fiscal crisis, when the council under Militant Tendency leadership set deficit budgets and borrowed against future years to cover today's shortfall, forcing a central-government intervention once the deferred bill became due.

The structural mechanism, converting a current-year gap into a future-year liability, is the same one Exceptional Financial Support formalises today, just done with the government's permission rather than against its wishes.

Counter-parallel: The Prudential Code, introduced in 2004 specifically to stop councils borrowing beyond what they could afford, has not prevented the 2026 rise. A safeguard built after the last crisis exists and is still being routed around, because it constrains discretionary capital borrowing rather than the revenue deficits driving Exceptional Financial Support.

Consensus view: The Chartered Institute of Public Finance and Accountancy (CIPFA) treats the rise in capitalisation directions as evidence that Exceptional Financial Support has stopped being an emergency backstop and become a routine budgeting tool, since a mechanism designed for a handful of outlier councils now covers three dozen in a single year.

Counter-view: The Institute of Economic Affairs argues the count says more about spending discipline than about funding adequacy, pointing to discretionary programmes layered onto statutory duties as the item councils should cut before reaching for 20-year capitalisation borrowing.

Key tension: Whether the 18-to-36 rise in two years reflects a funding formula that has not kept pace with statutory demand, or a governance failure at the individual council level that a needs-based formula would not fix.

Sources:Ministry of Housing, Communities and Local Government

Mentions:Ministry of Housing Communities and Local Government (MHCLG) →Shropshire →Croydon →Isles of Scilly →Local Government Chronicle →Exceptional Financial Support →Institute of Economic Affairs →Chartered Institute of Public Finance and Accountancy (CIPFA) →Local Government Association →

First Reported In

Update #1 · The distress moved from banks to councils

Ministry of Housing, Communities and Local Government· 27 Jul 2026

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Causes and effects

Caused by

Nottingham files its third s114 notice

Nottingham's third section 114 notice is one instance of the local government distress reflected in the EFS count rising to 36 councils.

Occurred 28 Feb 2026

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This Event

MHCLG backs 36 councils with £1.74bn

A backstop designed for a handful of outlier councils now covers three dozen authorities in a single year, and nothing about that crosses a legal threshold.

Led to

Thirty-six councils wait, none of them confirmed

The 36 authorities named in the updated guidance are the same cohort granted support in-principle in February.

Occurred 18 Aug 2026

Read story →

We withdraw our £1.74bn council support figure

The withdrawn £1.74bn figure traces back to this desk's first report of the February support decision.

Occurred 3 Sept 2026

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Different Perspectives

Pension Protection Fund

Acting chief actuary Aaron Pang put the rise to 135.0% funded down to liabilities falling 2.1% against a 1.0% fall in assets, reflecting higher gilt yields. On Lowdown's reading, the yields that lift the Treasury's interest bill leave 4,838 company schemes with a £280.7bn surplus that does not reduce state borrowing.

Torsten Bell

The Labour figure wrote on 14 October that the IMF's October figures show the fastest fiscal consolidation in the G7. The IMF forecasts the UK deficit falling from 3.8% of GDP in 2026 to 1.4% in 2031, a squeeze still to be delivered through taxes and spending.

Tax Justice UK

The left-leaning campaign group says ten tax reforms would raise over £60bn a year for public services, and on 22 October asked why higher taxes on extreme wealth remain politically difficult. It offers the tax-led exit to the IEA's cuts; the £60bn is its own claim, not an official costing.

Institute of Economic Affairs

The free-market think tank's Alternative Budget of 19 October would suspend the state pension triple lock for three years, freeze welfare in cash terms and move tax onto a wider VAT. It claims the day-to-day budget returns to surplus in 2027-28, its own projection rather than an official costing.

Resolution Foundation

The living-standards think tank said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October, and its economist Greg Thwaites urged targeted energy support. Its figure lands as a Chancellor who calls welfare cuts a moral duty finalises the 28 October Budget.

Institute for Fiscal Studies

Director Helen Miller said a steady-as-she-goes Budget is not an option, with the IFS putting 2029-30 headroom at about £20bn, The Independent reported on 12 October. The IFS puts the cost of avoiding cuts and funding higher defence at around £35bn of tax rises or benefit cuts, more than any headroom estimate in circulation.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.