Soaring inflation burns hole in councils’ finances, LGA finds

Soaring inflation burns hole in councils’ finances, LGA finds

Rising energy costs caused by Russia’s invasion of Ukraine lifting European gas prices and an uplift to the national living wage will heap an extra £2.4bn onto council budgets this year, according to the Local Government Association (LGA) (Photo by Martin Pope/Getty Images)

Rampant inflation is burning a hole in the finances of English and Welsh councils and may force them to trim public services without more funding, reveals a fresh report published today.

Rising energy costs caused by Russia’s invasion of Ukraine lifting European gas prices and an uplift to the national living wage will heap an extra £2.4bn onto council budgets this year, according to the Local Government Association (LGA).

Councils’ bills will have jumped by £3.6bn in three years’ time, the report said.

Rising costs is likely to result in councils scaling back essential public services due to their legal requirement to balance their finances this year.

Paying more for resources such as energy and workers without a funding injection from central government will mean councils’ budgets set last March will not be enough to cover all services.

Extra cost pressures have generated “a serious risk to the future financial viability of some services and councils,” the LGA said, adding they have “left councils facing a perfect storm from demand for services continuing to rise just as the price of providing them is also escalating dramatically”.

The UK’s public finances have been hit hard by spending billions on cushioning the economic impact of the Covid-19 crisis. Britain’s debt pile is nearly the same size as its economy.

However, poorer households, who tend to use public service more frequently, are being hit hardest by the cost of living crunch. 

Cllr James Jamieson, chairman of the LGA, said: “Soaring inflation, energy prices and national living wage pressures are putting council services at risk. Budgets are having to be reset with potential cuts to the essential services people rely on, in the middle of a cost-of-living crisis.”

Inflation has climbed to a 40-year high of 9.1 per cent, but is expected to top 11 per cent in October when the  cap on energy bills rises again.

“Inflation is not going to come down overnight. As our analysis shows, the impact on our local services could be disastrous,” Jamieson added.

“This will stifle our economic recovery, entrench disadvantage, and undermine government ambitions to level up the country.”

The report comes as this week education secretary Nadhim Zahawi and shadow levelling up Secretary Lisa Nandy will speak at the LGA’s annual conference.

A government spokesperson said: “This year, we made an additional £3.7 billion available to councils so they can continue delivering key services, and we are working with the sector to understand the impact of emerging challenges.”

“As many families face cost of living challenges, the record increase in the national living wage will mean someone working full time taking home £5,400 more annually than they were in 2010, while our £37 billion package of financial support is helping the most vulnerable in society.“

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