Councils Face Financial Strain Amid Rising Homelessness and Funding Uncertainty
Published 8 December 2025
Highlights
- Worthing Borough Council anticipates a £2m budget overspend due to rising homelessness, spending 30% of its annual budget on the issue.
- Local authorities in England and Wales warn their finances are at "breaking point," with some councils facing potential bankruptcy.
- The Ministry of Housing, Communities and Local Government is expected to release a new funding settlement on 17 December.
- Norfolk County Council faces a £62m spending gap, with potential service cuts or council tax increases needed to balance the budget.
- Councils are seeking increased government funding to manage demand-led services like social care and homelessness.
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Rewritten Article
Headline: Councils Face Financial Strain Amid Rising Homelessness and Funding Uncertainty
Local authorities across England and Wales are grappling with severe financial pressures, with some councils warning of potential bankruptcy as they await a crucial government funding settlement. Worthing Borough Council in West Sussex has highlighted the growing homelessness crisis as a significant factor in its projected £2 million budget overspend. The council expects to allocate 30% of its annual budget to address homelessness, despite efforts to build temporary accommodations and collaborate with landlords to avoid placing individuals in bed and breakfasts.
The council's financial strain reflects a broader crisis affecting local authorities nationwide. A total of 29 councils, including Croydon, Thurrock, and Birmingham, have already required special government loans to meet their financial obligations. Andrew Jamieson, Norfolk County Council's deputy leader for finance, expressed concerns that more councils might face similar challenges when the government publishes its new funding settlement on 17 December.
The Local Government Association has emphasized the relentless cost and demand pressures on key services such as children's social care, adult social care, and homelessness. A spokesperson stated, "Councils need a significant increase in overall funding to stem the emerging risk of system-wide financial failure."
Norfolk County Council is currently managing a £62 million spending gap, with potential service cuts or council tax increases on the horizon. Jamieson noted that while some councils with high levels of social deprivation might fare worse under the new funding formula, Norfolk's aging population also requires substantial local authority support.
The Ministry of Housing, Communities and Local Government has indicated that the upcoming "fair funding review 2.0" will address these issues, with funding allocations expected to prevent councils from going bankrupt in the 2026-27 fiscal year. However, the formula used to allocate this funding remains unpublished, leaving councils in a state of uncertainty.
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Scenario Analysis
As local authorities await the government's funding settlement, the financial landscape for councils remains precarious. If the new funding formula fails to adequately address the needs of councils with high levels of deprivation or aging populations, more councils could face insolvency. The potential for increased council tax rates may also place additional burdens on residents, particularly in areas already struggling with economic challenges.
Experts suggest that without significant government intervention, councils may be forced to make difficult decisions regarding service cuts, impacting vital areas such as social care and homelessness support. The outcome of the funding review will be crucial in determining whether councils can stabilize their finances and continue to provide essential services to their communities.
Local authorities across England and Wales are grappling with severe financial pressures, with some councils warning of potential bankruptcy as they await a crucial government funding settlement. Worthing Borough Council in West Sussex has highlighted the growing homelessness crisis as a significant factor in its projected £2 million budget overspend. The council expects to allocate 30% of its annual budget to address homelessness, despite efforts to build temporary accommodations and collaborate with landlords to avoid placing individuals in bed and breakfasts.
The council's financial strain reflects a broader crisis affecting local authorities nationwide. A total of 29 councils, including Croydon, Thurrock, and Birmingham, have already required special government loans to meet their financial obligations. Andrew Jamieson, Norfolk County Council's deputy leader for finance, expressed concerns that more councils might face similar challenges when the government publishes its new funding settlement on 17 December.
The Local Government Association has emphasized the relentless cost and demand pressures on key services such as children's social care, adult social care, and homelessness. A spokesperson stated, "Councils need a significant increase in overall funding to stem the emerging risk of system-wide financial failure."
Norfolk County Council is currently managing a £62 million spending gap, with potential service cuts or council tax increases on the horizon. Jamieson noted that while some councils with high levels of social deprivation might fare worse under the new funding formula, Norfolk's aging population also requires substantial local authority support.
The Ministry of Housing, Communities and Local Government has indicated that the upcoming "fair funding review 2.0" will address these issues, with funding allocations expected to prevent councils from going bankrupt in the 2026-27 fiscal year. However, the formula used to allocate this funding remains unpublished, leaving councils in a state of uncertainty.
What this might mean
As local authorities await the government's funding settlement, the financial landscape for councils remains precarious. If the new funding formula fails to adequately address the needs of councils with high levels of deprivation or aging populations, more councils could face insolvency. The potential for increased council tax rates may also place additional burdens on residents, particularly in areas already struggling with economic challenges.
Experts suggest that without significant government intervention, councils may be forced to make difficult decisions regarding service cuts, impacting vital areas such as social care and homelessness support. The outcome of the funding review will be crucial in determining whether councils can stabilize their finances and continue to provide essential services to their communities.
