LGIU response: council borrowing 2025

Jonathan Carr-West, Chief Executive, Local Government Information Unit (LGIU), said:

“In 2010, government funding for local government reduced dramatically and councils were encouraged to use their own resources and ingenuity to raise money themselves. As a result, many councils borrowed to invest in commercial property and new developments. For a good number, these have been successful ventures, but since then, most councils have carried fairly high debt levels, with a small number carrying very high levels. Increasingly, debt has been taken on as a way to make up for gaps in the capital budget to fund routine maintenance and essential improvements.

While high levels of debt are always concerning, the key issue is the ability of councils to repay that debt within the constraints of the current local government funding system, coupled with the increasing number and cost of services that councils are mandated to provide.

In our 2025 State of Local Government Finance research earlier this year, we found that around a quarter of councils said that their level of debt was a problem. It is not hard to see why most councils have a small number of levers they can pull to raise enough money to repay the debt – cut services, raise council tax (up to the referendum limits), in some cases raise fees and charges, but not much else.

For the small number of councils receiving exceptional financial support, the government grants them a few more options. They can take out loans from the government or sell off assets to meet their budget gap. The consequences of these are either more debt or a permanent loss of publicly owned assets.

We need a bold and potentially difficult conversation about real fiscal devolution that would equip councils with the tools they need to raise revenue. This should take place alongside a genuine discussion about what services we want from local government and how much they will actually cost in the coming decades.”

• Related analysis from the LGIU: What happens to debt when councils reorganise?