The impact of a weak growth economy on UK local government service provision

The UK economy shrank unexpectedly in January contracting by 0.1%. According to the BBC website: “Economists had predicted the economy would grow by 0.1% in January, after 0.4% growth in December. Monthly readings can be volatile, and the ONS said the economy was estimated to have grown by 0.2% over the three months to January…. With tax rises coming into force in April, concerns remain that economic growth will remain sluggish for some time”. The overall picture for the UK was one of weak growth, said Liz McKeown, ONS director of economic statistics.

What is the impact of ‘a weak growth economy’ on local government service provision?

A sluggish economy leads to lower business profits and weaker property markets, reducing tax revenue collected by councils. Typically, central government often reduces funding to local councils during periods of economic stagnation as part of broader austerity measures. This reduced income must be seen in context of higher outgoings which is compounded in periods of weak economic performance due to an increased demand for local government services: More people require social care, housing support, and benefits as job opportunities decline. Economic hardship often leads to worse mental and physical health, increasing pressure on NHS partnerships, social care, and homelessness services.

To combat this many councils make difficult choices, often cutting non-essential services such as libraries, leisure centres, road maintenance, and youth programs. To reduce costs further, some councils privatise services, potentially leading to lower service quality and accessibility issues.

A long-term impact of poor national economic performance is reduced capital spending in the local authority sector. Weak economic growth means local authorities may postpone or cancel transport, housing, and regeneration projects, slowing long-term development. Infrastructure delays can discourage investment, exacerbating economic stagnation.

As witnessed in the last three years there is an increased risk of council insolvency. Section 114 Notices have been issued in extreme cases whereby councils declare themselves effectively bankrupt, as seen with Birmingham City Council, leading to drastic service cuts.

Major world economic disruptions in recent decades have made matters worse. Following the 2008 financial crisis, the UK government implemented austerity measures starting in 2010, leading to significant reductions in local government budgets. These cuts affected various public services, including social care, housing, and infrastructure maintenance. Then there was the second austerity period (2021–2024) where high inflation and the removal of COVID-era support measures led to a renewed phase of austerity. Local governments faced increased financial strain, with some councils warning of potential insolvency without additional funding.

In 2025/26, structural reforms in the local government sector are looming adding to uncertainty.  Proposals have been made to restructure local government by introducing combined authorities and elected regional mayors, potentially dissolving existing district or borough councils. Critics argue this could centralize power and undermine local democracy. It is also argued that such changes can exacerbate economic disparities between regions, with wealth and investment often concentrated in specific areas that can return a higher GDP, primarily where there are cities and large conurbations. Furthermore, any disparities in funding and decision-making leads to uneven development across the country.

What can councils do to mitigate the effects of the stagnant economy?

With financial pressures mounting, councils are doing more with less primarily through innovation and smarter spending. One area being considered is shared services & collaboration through the merging of ‘back-office’ functions (HR, IT, procurement) across councils to reduce administrative costs.

Digital transformation & AI adoption is another area many councils are investigating. Increasing the use of AI and automation for customer service is topical with projects already starting. Shifting even more services online to reduce costs (e.g., digital planning applications, remote council meetings) is increasingly common. In 2024 the Local Government Association (LGA) called for the establishment of a “Local Government Centre for Digital Technology (LGCDT)” the aim of which is to promote technological innovation to deliver reform and inclusive economic growth across councils. The LGCDT envisions a future where local government fully leverages digital tools, to empower communities and drive economic growth, aligning with the Government’s agenda for public sector reform. Furthermore, the LGA believes that “local government needs a new devolved operating model, and a Local Government Centre for Digital Technology would enable engagement, coordination and impact”. More about the LGCDT can be found here: State of Digital Local Government | Local Government Association

Maximising asset utilisation is another key area for some councils. In waste & recycling collection this involves working the vehicles more through a longer day (while rostering drivers and crews to split shifts). Adopting a four-day working week for crews but having vehicles work 6 or 7 days is also underway. Another concept is to optimise cross boundary working, ie, partnering with a neighbouring council to reduce non-productive driving time along council boundaries.

The UK economic outlook remains uncertain, so local government is innovating & collaborating to ensure the continued provision of services while having an eye on both short- and long-term solutions.