The Local Government Bathtub: Don’t Change Its Shape Fix the Four Holes Letting All the Water Out

Imagine local government as a bathtub. The taps represent funding central government grants, council tax, business rates, and other income streams. The water flowing in is meant to fill the bath and allow councils to deliver vital services: education, adult social care, waste collection, libraries, parks, and more. But this bathtub has four gaping holes in the bottom. No matter how much water you pour in, it drains away faster than it can be replenished. These holes are:

1. Children’s Social Care 

2. Special Educational Needs and Disabilities (SEND) 

3. Temporary Accommodation 

4. Adult Social Care

These aren’t minor leaks that can be patched with efficiency savings or short-term grants. They are structural failures deep, systemic issues that are draining the financial resilience of councils across the country.

Copyright: Observer Design

Each of these areas has seen exponential cost growth, driven by rising demand, outdated funding formulas, and policy decisions that have shifted risk and responsibility onto local authorities without the resources to cope. Councils are forced to make impossible choices: cutting preventative services to fund crisis response, raiding reserves to balance budgets, and in some cases issuing Section 114 notices the local government equivalent of bankruptcy. The metaphor is powerful because it illustrates a fundamental truth: you can’t fix the bath by changing its shape. Reorganising councils merging them, redrawing boundaries, or creating new structures does nothing to address the fact that the water is still pouring out of the bottom. Until we repair the broken systems of children’s social care, SEND, housing, and adult social care, no amount of structural reform will restore sustainability.

1. Children’s Social Care: Spiralling Costs, Stalled Outcomes

Children’s social care has become one of the most financially destabilising areas for local government. Councils in England are projected to spend £15.5 billion on children’s social care in 2025–26 a £1 billion real-terms increase from the previous year. This is not a temporary spike; it reflects a long-term trend of rising demand, increasing complexity, and escalating costs.

A significant proportion of this increase nearly three-quarters is driven by the cost of supporting looked-after children, particularly those requiring specialist or secure placements. These placements are often provided by private providers, and the costs can be eye-watering. In some cases, councils are spending over £1 million per child per year on complex care packages, especially where multiple agencies are involved or where children have significant behavioural or mental health needs.

This level of expenditure is not matched by improved outcomes. Despite the financial investment, many councils report that the system is reactive rather than preventative, with resources focused on crisis intervention rather than early help. The workforce is under immense pressure, with high caseloads, recruitment challenges, and retention issues contributing to instability and inconsistency in care. Moreover, nearly all councils overspend in this area, often by millions of pounds annually. This overspend has a knock-on effect across the entire council budget, forcing cuts to other services such as youth work, family support, and community programmes ironically, the very services that could help prevent children from entering care in the first place.

The current funding model is widely regarded as unsustainable. It incentivises high-cost placements over community-based solutions and fails to account for the growing complexity of need. Without reform, children’s social care will continue to act as a financial sinkhole, draining resources and undermining councils’ ability to deliver other essential services.

2. SEND: A System on the Brink

Special Educational Needs and Disabilities (SEND) provision in England is facing a crisis of scale, sustainability, and fairness. The number of children with Education, Health and Care Plans (EHCPs) has more than doubled since 2015, reaching 575,973 in 2024. This dramatic rise reflects both increased identification of need and a growing reliance on formal plans to access support often because mainstream provision is under-resourced or unable to meet complex needs.

The financial consequences are staggering. SEND deficits across local authorities are projected to reach £5.9 billion by March 2026. Nearly half of councils are facing effective bankruptcy if the statutory override which temporarily allows them to exclude SEND deficits from their overall budget position is lifted. This override was never meant to be permanent, and its expiry threatens to expose the full scale of the financial fragility in the system.

At the heart of the issue is the cost of specialist placements. The average cost per pupil is £58,000, which is seven times higher than mainstream provision. While some children absolutely require specialist environments, the lack of inclusive capacity in mainstream schools means that many are placed in expensive settings by default, not by design. This is not only financially unsustainable it also risks isolating children from their communities and placing strain on families. The system is increasingly described as “unviable” and a “postcode lottery”. Access to support varies wildly depending on where a child lives, with some councils facing legal challenges over delays and refusals. Parents often feel they must fight for provision, and professionals are caught between rising demand and shrinking budgets. The result is a system that is adversarial, inefficient, and deeply inequitable.

SEND reform is not just a financial imperative it is a moral one. Without urgent action to rebalance funding, invest in inclusive education, and streamline processes, the system will continue to buckle under pressure. And as with children’s social care, the consequences ripple outward: overspending in SEND forces cuts elsewhere, undermining the broader mission of local government to support communities and promote opportunity.

3. Temporary Accommodation: Unsustainable and Unsafe

Temporary accommodation has become one of the fastest-growing and most financially punishing areas of local government expenditure. In 2024–25, councils across England spent a staggering £2.8 billion on temporary accommodation a 25% increase in just one year. This is not a blip; it reflects a deepening housing crisis that is pushing more families into emergency shelter and placing councils under immense financial strain.

The human cost is equally alarming. Over 169,000 children are currently living in temporary accommodation the highest number ever recorded. These children are often housed in unsuitable, overcrowded, and unstable environments, which can have long-term impacts on their health, education, and emotional wellbeing. For many families, temporary accommodation is not temporary at all it becomes a prolonged period of uncertainty and hardship. A significant portion of this spend £844 million is on emergency placements such as B&Bs and hostels. These are not designed for families and frequently fall short of basic safety and decency standards. Councils are forced to use them due to a lack of affordable housing and the sheer volume of demand, despite knowing they are inappropriate and costly.

The scale of the challenge is not lost on those working at the sharp end of local government. Councils are doing everything they can to respond, but the lack of long-term housing options is making it increasingly difficult to move families out of temporary accommodation and into stable homes. This is not just a logistical challenge it’s a structural one. As Louise Seymour, Assistant Director for Place Shaping at West Northamptonshire Council, wisely states:

the challenge of temporary accommodation is also exacerbated by the fact we are not building enough social rent homes to meet the needs of those in most urgent need.

To make matters worse, the financial model underpinning temporary accommodation is fundamentally broken. Reimbursement rates from central government are based on 2011 rental values, which bear little resemblance to today’s housing market. This leaves councils hundreds of millions of pounds out of pocket, effectively subsidising a failing system with money that should be spent on prevention and long-term solutions.

The result is a vicious cycle: rising homelessness leads to increased use of temporary accommodation, which drains budgets and reduces capacity to invest in housing supply, support services, and prevention. Councils are trapped in a reactive mode, firefighting symptoms rather than addressing root causes. Without reform including updated funding formulas, increased social housing provision, and a national strategy to tackle homelessness temporary accommodation will continue to be both unsustainable and unsafe, undermining the financial and moral foundations of local government.

4.      The Financial Vortex: Adult Social Care and the Unsustainable Cost Curve

The fourth and often under-acknowledged hole in the local government bathtub is adult social care a service that now consumes more than £26.7 billion of council budgets in England for 2025–26, excluding NHS contributions. This represents a £2.2 billion cash increase from the previous year, yet experts warn that this uplift is barely sufficient to cover rising wage and tax costs, let alone meet growing demand. The National Living Wage increase and changes to National Insurance contributions alone are expected to cost councils £2 billion, meaning the entire budget rise is effectively swallowed before any service improvements are made.

The pressures are not just financial they are structural. Councils are responsible for commissioning 71% of adult care services, and the cost of doing so has surged due to inflation, workforce shortages, and increased complexity of need. Despite spending more, many councils are supporting fewer people than they did a decade ago. Between 2015 and 2024, the number of older adults receiving long-term support fell, even as requests for help rose from 1.8 million to 2.1 million. This is the result of a vicious cycle: rising costs force councils to tighten eligibility, which in turn leads to unmet need, poorer outcomes, and greater pressure on the NHS and unpaid carers.

The system is described by experts as being caught in a “doom loop” where increasing costs lead to reduced provision, which then exacerbates demand and drives further cost escalation. Providers report that council fee increases are not keeping pace with their own cost rises, with some facing 10% increases in operating costs while council payments have only risen by 5.6%. The result is a fragile market, with many care providers at risk of collapse and councils struggling to maintain service continuity.

Without reform including a sustainable funding model, fair pay for care workers, and a long-term strategy for workforce and service development adult social care will continue to act as a financial vortex, draining resources from other vital services and undermining the stability of local government as a whole.

Copyright: Institute for Government.

Reorganisation: Right Idea, Wrong Order

The government’s push for local government reorganisation typically involving the merging of district and county councils into unitary authorities is often presented as a modernising move. The narrative is one of simplification, efficiency, and cost savings. On paper, fewer councils mean fewer chief executives, fewer duplicated services, and streamlined decision-making. But this framing misses a critical point: reorganisation doesn’t fix broken systems.

If the core services delivered by councils particularly children’s social care, SEND, temporary accommodation, and now increasingly adult social care are structurally unsustainable, then changing the shape of local government is like rearranging the deck chairs on a sinking ship. The bath is still leaking. The financial pressures remain. The systems are still broken.

Adult social care alone now accounts for over 40% of council service spending, with costs rising due to demographic pressures, workforce shortages, and inflation. Councils are spending billions more each year just to stand still, and many are supporting fewer people than they did a decade ago. Without reform, adult social care will continue to act as a financial vortex, pulling resources away from other services and undermining the viability of any structural change.

The current wave of reorganisation is not small-scale. It affects 41% of England’s population, and yet many councils lack the strategic capacity to manage such a transformation while also delivering day-to-day services under extreme financial pressure. Reorganisation demands time, leadership, and investment all of which are in short supply.

Moreover, the promised savings are increasingly being called into question. Many of the financial models used to justify reorganisation are based on outdated assumptions about staffing, estates, and service integration. Recent analysis suggests that some reorganisations could actually cost taxpayers up to £850 million, once transition costs, redundancy payments, IT integration, and service disruption are factored in.

Perhaps most concerning is the political timing. The pace of reorganisation is often dictated by electoral cycles, not by service reform or community need. There is pressure to show quick wins, to deliver visible change before the next election, and to push through structural reform without first addressing the underlying service failures. It’s a classic case of doing too much, too fast, and mistaking movement for progress. Reorganisation may well have a role to play in the future of local government. But it must come after, not before, the repair of the systems that are currently draining councils dry. Until we fix the leaks in children’s services, SEND, housing, and adult social care, no amount of structural change will deliver the sustainability and resilience the sector so urgently needs.

What Needs to Happen First

Before any meaningful restructuring of local government can take place, we must first address the systemic failures that are undermining councils’ financial sustainability. Reorganisation may offer long-term benefits in terms of efficiency and governance, but it cannot succeed while the core services remain broken. The following reforms are essential:

1. SEND Reform

We need a sustainable funding model that reflects the true cost of supporting children with special educational needs and disabilities. This must be paired with a renewed focus on early intervention, reducing the need for costly specialist placements by equipping mainstream schools to be genuinely inclusive. Investment in training, infrastructure, and multi-agency collaboration is key to ensuring that children receive the right support, in the right place, at the right time.

2. Children’s Social Care Reform

The system must shift from crisis response to prevention and stability. This means investing in early help services, supporting kinship care arrangements, and building a resilient, well-supported workforce. Reform should also address the marketisation of care placements, ensuring that councils are not held hostage by spiralling costs from private providers. A national strategy is needed to rebalance risk, improve outcomes, and restore financial control.

3. Housing Reform

Temporary accommodation must be tackled head-on. This requires updated reimbursement rates that reflect current market conditions, a significant expansion of social housing, and a long-term homelessness strategy focused on prevention, wraparound support, and tenancy sustainment. Councils need the tools and funding to move families out of emergency settings and into safe, stable homes.

4. Adult Social Care Reform

Adult social care is now one of the largest and fastest-growing areas of council expenditure. Reform must include a sustainable funding settlement, fair pay for care workers, and a strategy to support both older people and working-age adults with complex needs. Councils need the flexibility to invest in community-based care, reduce reliance on high-cost placements, and stabilise the provider market. Without reform, adult social care will continue to consume an ever-larger share of council budgets, crowding out other essential services. Only once these four foundational reforms are in place can local government reorganisation deliver the efficiencies, resilience, and improved outcomes it promises. Until then, structural change risks being a distraction or worse, a costly failure that ignores the real reasons councils are struggling to stay afloat.

Conclusion: Fix What’s Broken Before Rebuilding

Local government reorganisation is not inherently a bad idea. In fact, it may be necessary to modernise governance, improve accountability, and unlock long-term efficiencies. But it is being pursued in the wrong order and at the wrong time. The real crisis in local government is not structural, but systemic. Councils are being financially hollowed out by four major service pressures: children’s social care, SEND, temporary accommodation, and adult social care. These are not isolated issues they are interconnected, complex, and growing. They are the four holes in the bottom of the local government bathtub, draining resources faster than they can be replenished.

Until these systems are reformed, no amount of reorganisation will deliver sustainability. Structural change without service reform is like building a new house on unstable foundations. It may look promising, but it won’t last. The sector needs a reset not just in how councils are configured, but in how they are funded, supported, and empowered to meet the needs of their communities. Only then can reorganisation become a tool for progress, rather than a distraction from the real work that needs to be done.