From Croydon to Birmingham, a new round of Exceptional Financial Support reveals the depth of financial strain in local government – alongside ministers’ promise of structural reform.
Local authorities facing severe financial pressure will be granted additional flexibility to balance their budgets, as the Government confirmed a fresh round of Exceptional Financial Support (EFS) alongside a £78 billion multi-year funding settlement for councils.
Announced by the Ministry of Housing, Communities and Local Government on 23 February, the package is intended both to prevent immediate service failure and to begin longer-term reform of how local government is funded.
What Exceptional Financial Support Allows
Exceptional Financial Support permits councils in acute financial difficulty to use capital resources – including receipts from asset sales and borrowing – to cover day-to-day revenue costs. While not designed as a permanent solution, it enables authorities to set legally balanced budgets and avoid effective bankruptcy.
The process has existed since 2020, largely as an emergency safeguard. However, ministers say this latest round sits within a broader commitment to stabilise council finances and reduce repeat reliance on exceptional measures.
Support is subject to strict conditions, including comprehensive financial assessments and further engagement where required to ensure credible recovery plans are in place.
The Councils Receiving Support
Alongside the national announcement, the Government has issued formal response letters to several authorities granted support or related flexibilities for 2026–27.
These include:
- London Borough of Croydon – granted support covering 2025–26 and 2026–27
- Slough Borough Council – granted support for 2026–27
- Thurrock Council – granted support across 2024–25, 2025–26 and 2026–27
- Woking Borough Council – granted support for 2026–27
- Warrington Borough Council – granted support covering 2025–26 and 2026–27
- Birmingham City Council – approved to reprofile previously agreed capitalisation support spanning 2020–21 to 2025–26
The inclusion of Birmingham – the largest local authority in Europe – underlines the scale and systemic nature of the pressures facing the sector.
Several of these councils have previously issued Section 114 notices or experienced sustained financial instability. In some cases, the new arrangements extend support across multiple years, reinforcing concerns about structural weaknesses in the current funding model.
A £78 Billion Multi-Year Settlement
Alongside EFS, ministers confirmed £78 billion for councils through what they describe as the first multi-year funding settlement in more than a decade.
The settlement introduces an updated evidence-based approach, incorporating the latest Indices of Multiple Deprivation to better reflect local need and the genuine costs of service delivery in deprived areas.
The Government argues this marks a shift away from an outdated funding framework that left some councils disproportionately exposed to financial shocks.
Minister: “People in deprived areas have been let down for too long”
Minister for Local Government and Homelessness, Alison McGovern, set out the case for intervention:
“People in deprived areas have been let down for too long, with councils in the poorest areas left on their knees and services cut back as a result.
The support we’re announcing is critical for the councils, and we are doing everything we can to ensure councils can balance the books, including by making £78 billion available through the first multi-year settlement in a decade.”
Her remarks frame the issue as one of fairness as much as financial management, particularly for communities experiencing higher levels of deprivation.
Breaking the Cycle
The Government has made clear that while Exceptional Financial Support remains necessary, it does not want to see rising numbers of councils entering the scheme. Ministers say funding reform and multi-year certainty should reduce repeat applications and enable authorities to move towards sustainable recovery.
For councils, the central question will be whether the combination of conditional support and revised allocations is sufficient to restore long-term financial stability.
If successful, the reforms could allow local authorities to shift their focus from crisis management to service improvement – protecting adult social care, children’s services, housing support and other essential local provision.
The breadth of councils now reliant on Exceptional Financial Support demonstrates the seriousness of the challenge. Whether this settlement represents a turning point will depend not only on the scale of funding, but on whether structural reform delivers the stability ministers promise.
(Photo: Stephen Richards)
