North East Local Authorities face financial distress ahead of budget season

New data reveals growing intra-regional disparities and higher deficits across the seven local authorities compared to the wider region and national average

With a collective deficit projected to reach £9.3 billion by 2026–27, local councils are facing significant financial challenges as they begin to make their annual budget decisions. This shortfall is largely attributed to structural issues within the funding system related to the increasing demands and costs of providing statutory services including social care and Special Educational Needs and Disabilities (SEND) provision. Of the 317 councils across England, only 14 are expected to balance their budgets or achieve a surplus.

Using data collected from the Medium Term Financial Strategies (MTFS), researchers from Newcastle University’s Centre for Urban and Regional Development Studies (CURDS) and the University of Cambridge’s Bennett Institute for Public Policy map the geography of local authority financial distress in the England and reveal the alarming higher deficits in the North East Combined Authority (NECA) area. Supported by Insights North East, the report, Mapping the gaps: the geography of local authority financial distress in England, highlights the growing intra-regional inequalities across local authorities’ finances that risk undermining essential public services and contributes to the wider debate about how to improve sustainability and resilience.

Key Findings:

• Local authorities in the NECA area have relatively higher deficits compared to their regional and national counterparts.
• While NECA councils face higher deficits, local authorities in the wider North East region rank similarly to others across England.
• There is no clear relationship between net revenue and deficit forecasts, indicating complex local financial situations
• While financial distress varies geographically across local authorities, there is not a direct connection between an area’s financial condition and which political party controls it.
• The type of local authority significantly influences financial situations, with Metropolitan Districts generally showing higher deficits per capita.

Professor Andy Pike, Director of the Centre for Urban and Regional Development Studies at Newcastle University, said:

“North East councils are facing an acute version of the financial distress in the sector in England and need to make their voices heard as national government moves toward the much need overhaul of the funding system alongside its devolution and reorganisation agenda”

Local leaders need to argue for tailored policies, financial support mechanisms and strategies that address short-term pressures as well as focusing on longer-term financial sustainability and resilience.

The full report is available here and the full briefing here.