23AUG

22% of councils on emergency support

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The Local Government Association's Spring Statement submission found that 22% of upper-tier councils responsible for adult social care, children's services and statutory housing are balancing 2026/27 budgets only via Treasury Exceptional Financial Support.

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Key takeaway

The LGA's Spring Statement submission shows 22% of upper-tier councils balancing 2026/27 budgets via Exceptional Financial Support.

The Local Government Association's Spring Statement submission found that 22% of councils responsible for adult social care, children's services and statutory housing are balancing 2026/27 budgets only via Exceptional Financial Support (EFS), the Treasury's emergency facility for authorities that cannot otherwise pass a balanced budget ¹. The LGA's verdict was direct: EFS arrangements 'are no longer exceptional, but are becoming an ever more relied upon mechanism'. The Treasury exemption now covers 22% of upper-tier councils.

One in five social-care councils balances on a Treasury exemption. Thurrock remains under MHCLG (Ministry of Housing, Communities and Local Government) commissioners with a £1.5 billion Section 114 estate. Birmingham and Nottingham have been issued Section 114 notices in the past two years. The mechanism is the same in each case: councils that cannot fund statutory duties from local revenue apply for Treasury permission to capitalise revenue spending against future asset sales, deferring the rule that bars them setting an unbalanced budget.

The structural point sits beneath every other event in this briefing. Voters tomorrow elect councillors for 5,000+ English seats to manage authorities whose finances only work because central government has waived the rules. Reform's projected county-level expansion takes it into chambers in which the binding constraint on policy is not local manifesto promise but Treasury sign-off on the next EFS application. The Greens' first London council majorities arrive on the same architecture. The financial substrate beneath the elected seats is the part of the contest the campaign did not litigate.

The LGA describes the trajectory in a single sentence: an emergency mechanism that is no longer emergency. The councillors elected on Thursday will manage that fragility for four years.

Deep Analysis

In plain English

Local councils in England are supposed to set a balanced budget each year: they cannot legally spend more than they bring in. But adult social care, children's services and housing costs have risen so fast that roughly one in five of the councils responsible for those services cannot balance their books without special permission from the Treasury. This permission is called Exceptional Financial Support. The phrase 'exceptional' used to mean what it says: an unusual emergency for a single council in crisis. The Local Government Association now says it has become routine. Councils like Thurrock, Birmingham and Nottingham have gone further and issued Section 114 notices, which effectively declare that the council cannot fund its legal obligations from its own resources. Thurrock's total shortfall is £1.5 billion. Councillors elected on Thursday inherit this situation. In many councils their room for manoeuvre on spending is narrow: they can set priorities within the limits the Treasury has agreed, but they cannot fundamentally change the financial position without central government's help.

What could happen next?

Consequence
Reform-led county councils that win majority control on Thursday, including Essex, Norfolk and Suffolk, inherit budgets in which adult social care already absorbs the majority of discretionary spend and SEND high-needs deficits are growing at 7% annually; their manifesto commitments face the same statutory floor constraints as any Labour-run council.
Immediate · 0.85
Risk
CIPFA's 2025 estimate of £2.3 billion in cumulative Treasury capitalisation directions represents deferred debt that councils will eventually need to service through asset sales; if asset values decline or sales stall, the structural gap returns to the revenue account.
Medium term · 0.65
Consequence
The LGA's Spring Statement language, 'no longer exceptional', is a formal public record that the Treasury's mechanism has been stretched beyond its design parameters; this language will feature in any future Spending Review negotiation as evidence for a structural funding settlement rather than case-by-case EFS.
Short term · 0.8

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: The 1985 abolition of the Greater London Council and the six metropolitan county councils by the Thatcher government transferred their service functions to the London boroughs and metropolitan districts without a proportionate transfer of funding. The boroughs and districts that inherited adult social care, transport coordination and housing responsibilities found themselves structurally underfunded within five years.

The mechanism was identical to the 2010 to 2024 pattern: central government transferred or imposed additional service responsibilities without the revenue base to fund them, producing a structural gap that widened each year. The 1985 GLC precedent is the closest historical parallel to the cumulative effect of 14 years of grant settlement reductions.

Counter-parallel: Northamptonshire's 2018 Section 114 notice, the first in England since 2000, was initially treated as a one-off governance failure rather than a systemic problem.

By 2023 Birmingham had issued its own Section 114 notice (the largest in UK local government history at £760 million in Equal Pay liability); by 2024 Thurrock's £1.5 billion Section 114 estate and Nottingham's notice confirmed that the one-off framing was wrong. The counter-parallel runs backwards: the 'isolated failure' frame was the incorrect diagnosis at each stage, which is why the LGA's 'no longer exceptional' language in 2026 matters.

EFS operates through two main instruments: capitalisation directions and reserve flexibilities. A capitalisation direction allows a council to treat certain revenue expenditure as capital, borrowing against future asset sales to fund current-year service costs. Reserve flexibilities allow councils to draw down statutory reserves at rates normally prohibited. Both instruments are Treasury approvals granted annually; without them, councils must set balanced budgets or issue a Section 114 notice.

The aggregate cost to the Treasury of outstanding capitalisation directions since 2022 is not published in consolidated form; CIPFA's 2025 estimate placed it at approximately £2.3 billion in cumulative approved capitalisation. The 22% of councils currently on EFS represent the upper-tier councils responsible for adult social care (adult care home commissioning, domiciliary care contracts), children's services (child protection, looked-after children placements) and statutory housing (temporary accommodation for homeless households).

Adult social care costs have risen at approximately 7% per year since 2020, driven by demand growth in older-age care and high-needs SEND (special educational needs and disabilities) placements. The national SEND high-needs deficit stands at approximately £4 billion, distributed across local authorities.

A council elected under Reform majority control that inherits an EFS-dependent budget cannot unilaterally cut statutory adult social care to reduce costs; the statutory minimum is set by central government. The elected councillors will be managing spending they cannot substantially reduce and funding they cannot substantially increase.

Consensus view: Stuart Hoddinott, senior researcher at the Institute for Government and author of its annual local government finance tracker, has documented the EFS trajectory: the mechanism was designed for individual council emergencies, not as a routine budgetary instrument.

When 22% of upper-tier councils use it simultaneously, the Treasury is effectively underwriting a fifth of the social-care sector's annual balance sheet, at an accumulated cost Hoddinott estimates at several hundred million pounds in capitalised revenue directives since 2022. Don Peebles, head of policy at CIPFA (the Chartered Institute of Public Finance and Accountancy), has described the current position as 'a managed insolvency ecosystem rather than a functioning local finance settlement'.

Counter-view: Tony Travers, professor of government at the London School of Economics and the most widely cited academic analyst of UK local government finance, has argued that the EFS mechanism is working as intended: it prevents service collapse in distressed councils while central government works through a longer-term funding settlement.

Travers notes that the 22% figure, while alarming in tone, reflects the LGA's own self-reporting rather than independent Treasury or MHCLG verification, and that some councils may be using EFS as a precautionary instrument rather than as the last resort it was designed to be.

Key tension: Whether EFS becoming routine represents the controlled management of a structural underfunding problem, as Travers argues, or a systematic failure of the 2010 to 2024 grant settlement regime that has created a class of councils structurally dependent on Treasury discretion, as Hoddinott and Peebles maintain.

Sources:Local Government Association

Mentions:Local Government Association →Exceptional Financial Support →Thurrock Council →Ministry of Housing Communities and Local Government (MHCLG) →Section 114 Local Government Finance Act 1988 →Birmingham →Institute for Fiscal Studies →Newport →Institute for Government →England →Reform UK →Nottingham →Section 106 RPA 1983 →Green Party →

First Reported In

Update #6 · 1 Days to Go: D'Hondt squeezes Welsh Greens

Local Government Association· 6 May 2026

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Causes and effects

This Event

22% of councils on emergency support

One in five social-care councils balances its books on a Treasury exemption from the rules Section 114 of the Local Government Finance Act normally enforces, which means voters elect councillors tomorrow to manage authorities whose finances only work because central government has waived the rules.

Led to

Thurrock: Reform 41/49 with no budget

LGA's finding that 22% of social-care councils balance only on Exceptional Financial Support contextualises the Thurrock commissioner paradox

Occurred 7 May 2026

Read story →

Different Perspectives

Ian Davidson, Acting Returning Officer for Clacton

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Scottish Labour members

Members now choose between Michael Marra and Joe Fagan after Monica Lennon fell one MP nomination short of the three-MP, three-MSP threshold, a bar set by MPs and union officials rather than the wider membership. Whoever wins takes office having faced only one rival on the members' ballot.

Labour Party

Labour gained Penistone East from Reform on 20 August but lost Harraby South to Reform the same night, a wash that undercuts any claim of momentum. The party can point to beating Reform in a genuinely fought contest, but not to a pattern running only in its favour.

Liberal Democrats

The Liberal Democrats took two of Reform's May wards, Almondbury on 13 August and St Neots Eynesbury on 20 August, the latter on a 29.8-point rise in their own vote share. Both results let the party claim it is the beneficiary when voters turn against Reform, not Labour or the Conservatives.

Reform UK

Reform UK can point to winning Clacton unopposed by the other major parties and to taking Harraby South from Labour, a ward it had never previously contested. That gives the party two results to cite even as three previously held wards changed hands elsewhere in August.

Sinn Féin

Sinn Féin's John O'Dowd ruled out a Stormont walkout on 11 August despite calling the DUP increasingly difficult to work with, closing a question Conor Murphy had left open a fortnight earlier. Only Sinn Féin or the DUP can collapse the joint First Minister office, so the denial gives up the party's own leverage in budget talks.