Reeves wraps up ‘grim’ UK spending talks amid council bankruptcy fears

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Chancellor Rachel Reeves has wrapped up “grim” public spending talks with ministers, but they have left a bitter aftertaste in Whitehall and warnings that more local councils could be pushed into effective bankruptcy.

Reeves said on Wednesday that all cabinet ministers had agreed a spending settlement for the 2025-26 financial year, with the results to be announced alongside her October 30 Budget.

“I’m very sympathetic towards the mess that my colleagues inherited,” Reeves said, but some ministers believe the Treasury failed to grasp the severe problems facing some public services.

One government official said day-to-day public services were being squeezed, with local councils expected to be badly hit. “There’s acute pressure,” said one, predicting that more local authorities could be forced into “Section 114” emergency measures.

Since 2018, eight local authorities have had to issue Section 114 notices, which are required when councils believe they are on track to breach their legal obligation to balance the books year-on-year.

The most high-profile recent casualties last year were Nottingham and Birmingham City councils, but the Local Government Association, which represents local authorities in England, has warned that many more are at risk.

A December 2023 survey of councils by the LGA found that one in five council chief executives feared they were at risk of needing to issue a Section 114 notice in the next two years. 

Chief among councils’ financial pressures is the spiralling cost of providing social care and temporary housing after decades of real-terms cuts in council budgets, combined with inflation increasing the cost of delivering services. 

Reeves and her chief secretary Darren Jones wrapped up talks with ministers at the end of last week, but only after some cabinet members appealed directly to Prime Minister Sir Keir Starmer to intervene.

“Clearly there’s some real dismay and anger but equally a recognition that the backdrop is very challenging,” said one government official. Another confirmed the negotiations had been “grim”.

Reeves told Radio 5 Live’s Matt Chorley that Jones had followed a Treasury tradition by popping a balloon every time a departmental minister agreed to the new spending plan. “There are no balloons left in the chief secretary’s office,” she said.

She added: “It’s perfectly reasonable that cabinet colleagues set out their case, both to me as chancellor and to the prime minister, about the scale of the challenges they may find in their departments. It has been a really constructive process.”

The chancellor said she had asked departments to find savings by “clamping down on waste, on the use of consultancies in government, looking at procurement to make sure we drive value for money”.

Reeves has vowed to “end Tory austerity” in future years and is planning a big rise in taxes in her Budget to protect Whitehall departments from having to make real-terms cuts later in the parliament.

The chancellor is looking to close a funding gap of about £40bn to inject money into day-to-day public spending, with a view to covering all current spending with tax revenues within five years.