Two in five local authorities in England could see their reserves drop to less than 5% of their net revenue expenditure within the next five years, new analysis has found.
The study by Grant Thornton UK LLP found that reaching this low level of reserves – described by the firm as ‘financial failure' – is a risk for more than one in five councils within the next year alone, and a quarter by the end of next year.
Metropolitan and unitary councils are at the highest risk of financial failure this year, followed by London boroughs and district authorities, the research found.
It also uncovered a £9bn funding ‘black hole' facing English councils over the next five years.
Grant Thornton's head of public services consulting, Phillip Woolley, said: ‘There have been calls for councils to use reserves to plug budget gaps but this is not a sustainable solution – reserves can only be used once and are intended to be a safety net, used only in exceptional circumstances.
‘It is critical that a more comprehensive overhaul of both local government finance and models for social care is undertaken to address local councils' deep-rooted financial challenges.'
