Cost of living crisis: councils face winter of ‘difficult decisions’ as spiralling inflation adds £1.5bn to costs

England’s largest councils today warn they could have to make in-year reductions to services and cancel or delay repairs to local roads and infrastructure as spiralling inflation adds over £1.5bn to their costs.

The new figures, based on research conducted by the County Councils Network (CCN) and the Society of County Treasurers, reveals that the estimated costs of inflation in 2022/23 for 40 of England’s largest councils has risen by 92% in just three months since they set their budgets in March.

With the UK’s inflation rate rising from 5.5% at the start of the year to 9% this Spring, and global costs rising, the research estimates that councils’ costs from inflation have risen from £789m in March when they set their budgets to £1.5bn as of June, leaving them with £729m of additional unfunded costs. County authorities are particularly exposed to these rising costs because of the nature of delivering services in large rural areas.

To balance their budgets – as they are legally required to – and control costs, councils are warning they face a winter of ‘difficult decisions’. These could include further unplanned reductions to services and the cancellation or delays to major construction projects such as new roads, amenities and infrastructure upgrades to schools, as well as pothole filling.

County leaders argue that the Chancellor has rightly prioritised support to families struggling with the cost-of-living crisis, but councils will need additional support in the Autumn Budget to cope with rising inflation costs.

The research reveals a breakdown of the total £1.5bn of inflationary costs being experienced by those authorities during this final year:

• Adult social care services are expected to be hit with £428m of additional in-year costs, including higher fees to care providers to offset their rising costs of running care homes. Children’s social care faces £72m of additional costs.
• The cost of delivering capital projects is set to be £397m higher, including an additional £211m in building new roads and pothole filling, while the cost of building new schools and other construction and building maintenance has grown £149m.
• Record energy prices are expected to add a minimum of £107m to council costs, including £60m for streetlights and £46m on fuel and energy bills.
• Inflation in external contract and labour costs, including highways maintenance and waste management, are expected to add £136m to council budgets at least.
• Rising fuel prices mean that bus, taxi and minibus providers are charging councils more for school transport services, adding £77m at least to councils’ costs.
• Increases in staff pay are expected to add £259m to the revenue budgets of councils.

While the government provided councils with additional funding for this financial year and council tax increased by an average of 3.6%, these inflationary costs, coupled with rising demand, far outstripped these additional resources.

As the energy price cap is raised and inflation peaks later this year, councils say that they expect costs to grow further, with these impacting council budgets well into next year.

The CCN says that alongside additional financial support later this year, the government will need to reopen its Spending Review settlement for councils for the 2023/24 financial year otherwise councils will be faced with a significant funding gap next financial year too.

Under the government’s three-year Spending Review, announced last October, the funding plans for local authorities in 2023/24 are ‘cash flat’ – meaning no rises are planned. Unless government increases funding allocations for local authorities in line with inflation, services will face further real terms cuts.

Cllr Carl Les, Finance Spokesperson for the County Councils Network, said:  

“Councillors in their communities know how much the cost of living crisis is impacting the lives of millions of people across this country and the Chancellor has rightly prioritised financial support those struggling the most.

“Councils’ frontline services play a vital role in supporting the most vulnerable through these difficult times, while their capital investment in local roads and infrastructure support local growth and employment at a time when the country is facing further economic strain in the coming months.

“Global price increases and spiralling inflation are having a major impact on these day-to-day services and construction projects, with our analysis showing that county authorities are facing extraordinary additional costs at a time when budgets were already under strain.

“Councils have a legal obligation to balance their budgets and have very little scope for meeting these pressures without cutting services, cancelling or delaying major infrastructure projects, or proposing even higher council tax rises next year. With inflation likely to rise even further remain high for the foreseeable future, councils face a winter of difficult decisions unless the government provides extra funding to offset these substantial extra costs.”

Notes to Editor

• The Society of County Treasurers (SCT) represents the chief financial officers of the 24 county councils in England as well as 16 unitary councils that share similar interests in local government issues. The Society provides a forum for members to share expertise on financial issues affecting large local authorities.
• Using a detailed excel survey model, SCT asked councils to estimate the inflationary costs they are currently expecting for the current financial year across a range of different revenue and capital budgets. The survey was completed by 20 authorities. The surveyed councils were a representative sample of county and county unitary councils by population size, geography and spend, meaning the results could then be extrapolated for all 40 councils to arrive at a robust total estimate for 2022/23.
• The table below provides a breakdown of inflation costs in 2022/23 for the 40 councils. These costs are purely additional inflation costs, excluding pre-existing demand-led services pressures.