When Labour won the election last July, it inherited a local government sector in crisis. Council after council had declared effective bankruptcy amid severe funding shortages and a long line of scandals. The Serious Fraud Office is currently investigating alleged fraud committed against Thurrock Council. Overall, progress has been made—particularly on dull-but-necessary policy, such as reforming funding allocations. But the real tectonic shifts—the big, bold choices—have yet to happen. Much remains stuck in the grey sludge of cautious reform.
Now that Labour has been in power for 12 months, let’s look in detail at Whitehall’s recent attempts to fix the council crisis.
The good: avoiding disaster, buying time
Let’s start with the positive: no councils have gone bust in the last 12 months. Such is the dismal standard inherited from the last government, that this alone counts as a win. Labour hasn’t waited for more councils to implode before stepping in. Instead, the government has announced a Fair Funding Review, which aims to redistribute investment in local authorities by reinserting deprivation into the formula used to allocate funding—something the Conservatives removed.
A second example is the government’s decision in June to extend the statutory override. This arcane accounting fix removes deficits in funding for children with special educational needs and disabilities from council budget lines. It was originally introduced by the Conservatives to spare dozens of councils from declaring bankruptcy. The current government’s extension of it gives councils temporary relief, but it’s not a permanent solution. According to a report from July last year, councils are currently overspending by £5bn. That burden will land somewhere— if not through reductions to other services, then through national tax increases.
Credit, too, where it’s due: the government is investing in places that haven’t seen it in a generation. In June, Rachel Reeves announced over £15bn in transport investment beyond London and the southeast in the spending review. This was long overdue. The money will flow through metro mayors and combined authorities, but some of it will reach local councils—and, more importantly, local residents. A further £39bn was announced for social and affordable housing over the next decade to “reinvigorate council housebuilding”. Whether those social and affordable properties will actually be affordable for the people who need them most is another matter.
Finally, the jury is out as to whether Labour’s administrative reform of local authorities, under which boundaries of councils across England are to be redrawn, will be a success. Plans for fewer councils (and therefore fewer councillors—which the Covert Councillor accepts may be met with public enthusiasm) are proceeding at pace. The savings the government says these changes will make are probably overstated; the disruption has certainly been underplayed. So far, few authorities have met these plans as much enthusiasm as this government. Members of the public living in areas that will change may not be overjoyed, either, when their rubbish is collected by another authority with a whole new set of rules.
Now, the bad: still broke, still blamed
The very things that are being celebrated as successes expose a deeper rot. Councils may not be bankrupt, but they remain close to the edge. Government ministers proudly proclaim that “core spending power” has risen by 6.8 per cent in cash terms, meaning councils will receive an additional £4.4bn for 2025–2026. That sounds generous until you read the small print. Over half of that uplift is modelled on the assumption that local authorities will hike council taxes by the maximum five per cent, which they are all but forced to do to stay afloat. That’s not new money from the government. It’s political sleight of hand and—in the words of David Simmonds MP—it “localises blame”.
Despite the £39bn pledged for affordable housing, this remains a problematic area. Prior to the spending review, Labour had taken to the one-sided idea that councils are the “blockers” to new housing—criticism levelled at them as the government cosied up with developers. Whitehall has criticised planning committees and has aimed to limit councillors’ room for manoeuvre. And it has also been increasing housebuilding targets for local authorities and taking more decisive action against any that fail to set out their plans. The government isn’t misguided in doing so, but it has firmly stuck its flag on the side of the private sector. Whitehall will help councils recruit 300 planners to boost under-resourced authorities, but that is equivalent to one planner per authority and hardly enough. A homelessness strategy is expected by the autumn. Even so, it’s notable that Starmer has not given this issue the same priority as housebuilding.
What’s more, the public remains deeply sceptical of councils. The failure of local authorities to protect children from sexual abuse is the most recent example, but there are many other areas where local government has lost trust. That public scepticism also reflects the state of the country that councils have been left to manage. High streets are increasingly vacant. Bins are routinely forgotten. Streets are often littered with rubbish. Costs are rising. Services are shrinking. No amount of Whitehall spreadsheets or political rhetoric can disguise the rot. Meanwhile, councils are left to make do, with little resourcing, amid a litany of systemic problems.
What’s missing: social care, streets and serious reform
Every government dodges the small matter of social care, which councils spend around two-thirds of their budget on, and this one is no different. Labour has launched an independent commission—led by Louise Casey, who has been appointed by this government to lead more than one such process. According to the terms of reference, Casey’s commission should suggest recommendations that can be implemented in a phased manner “over a decade”. This hardly sounds like the urgency the situation warrants.
And while the government has announced significant capital spending to help build roads, schools and transport infrastructure, which is much needed, fixing the public realm—pruning hedges, removing chewing gum from the high street, and so on—requires additional revenue. It’s a key distinction. Yet until the government is much more serious about investing in the local state, rather than reforming it, high streets will continue to be on the decline. Pavements will remain cracked. Streetlights will be turned off. Fly-tipping will increase. Potholes will get bigger. This is decline by a thousand indignities.
Councils may run the services people rely on most, but they remain largely invisible in this government’s political vision. Despite the fact that many MPs started their political careers in town halls, their loyalties lie firmly with Westminster once they win that coveted seat. If this government wants credit for rescuing local government, it must first acknowledge the scale of the decay.
Until Labour confronts that reality—on finance, care, housing, and the public realm—councils will remain the punchbag of British politics. Keir Starmer, so far, has avoided disaster. Now Labour must do better.
