Why financial resilience matters during local government reorganisation

Four questions to build stronger balance sheets after LGR

Chris Melia, director – local government, Civica

The first law of holes says if you find yourself in one, stop digging.

Common sense also tells us that you shouldn't start construction while you're still digging. But this, in effect, is what local government has been asked to do: lay foundations for a new authority in a hole that keeps getting deeper.

Current financial challenges facing local authorities

Large funding deficits mean a very real threat of section 114 notices looms large over many authorities. The Local Government Association projects a funding gap of more than £8 billion by 2028/29. Meanwhile, 30 local authorities successfully applied for Exceptional Financial Support in 2025/26. Yet the most significant budget pain points are common across all authorities; the rising costs of social care, homelessness and special educational needs and disabilities (SEND). Are the exceptions becoming the rule?

While stuck in this hole of financial pressure, local government is also being tasked with completely reshaping services, not least with the largest restructure in a generation through local government reorganisation (LGR). For many, LGR is not taking place at a time of stability, but during a financial emergency.

The growing impact of budget pressures and service demand

Civica's recent Public Sector Financial Resilience Report, in which we surveyed senior professionals from across the public sector, captured the extent of that emergency: nearly half (48%) of local authorities describe their current financial position as severe or critical. Conditions that were once exceptional are indeed now routine.

While the perfect time for transformation of this scale probably doesn't exist, it's worth remembering that building greater financial resilience and establishing new authorities under LGR must go hand in hand; the challenge is part of the solution.

The most successful authorities won't simply focus on balancing budgets or delivering reorganisation programmes. They'll use LGR to redesign how services are delivered, funded and improved. There's a change in perception that can help; LGR is not a reorganisation programme with financial implications. Instead consider it as a financial resilience programme that happens to require reorganisation.

For new authorities, that means making practical decisions that protect operational continuity, strengthen financial control and create the digital and data foundations for future transformation.

So, where should new authorities start? Four questions can help shape that work:

1. Can we deliver the same services for less?

Not by cutting, but by removing duplication, digitising high-volume transactions and automating rules-based processing. In practice, this could mean adopting unified revenues processing, shared contact centres and introducing more digital self-serve. These actions will enable the new authority to operate more efficiently from day one.

2. Can we deliver better services at the same cost?

LGR creates a rare opportunity to redesign customer journeys across larger geographies and service portfolios rather than carrying forward inconsistent experiences from predecessor councils. Aim to set a higher baseline for service quality, not just preserve what existed before.

For many transactional services, well designed digital channels can improve convenience for residents and reduce pressure on frontline teams. Authorities should look to move these more routine citizen interactions to online self-service channels. In practice, that could be running digital-first housing repairs, automated benefits claims or council tax interactions, or delivering proactive benefits notifications that change the way that councils engage with their customers.

3. Can we use data to prevent demand rather than just manage it?

This is perhaps the single biggest benefit and cost-saver of developing digital and data maturity. Merging data estates will create a richer picture of resident need than any predecessor authority could have held alone. Early intervention in areas such as housing maintenance, social care or debt management, for example, can reduce the need for more costly crisis response. In practice, this could be employing cross-dataset vulnerability indicators, proactive debt advice or using predictive housing repairs modelling.

4. Can the new authority earn more as well as spend less?

Financial resilience is not only about reducing costs, but also about income optimisation. LGR creates an opportunity to consolidate commercial assets, improve revenues collection rates and maximise grant income through better data and evidence.

Start with what's already owned. Merging predecessor councils' commercial assets – property, land, leisure and commercial estates – creates a single portfolio that can be managed for yield rather than administered piecemeal across legacy boundaries. For collections, harmonising council tax and business rates (NNDR) processes across predecessor authorities may surface gaps in recovery rates that were invisible when each council only had a partial view of its own performance.

Better data doesn't just support the case for services; it strengthens the case for funding them. Authorities with clean, unified evidence are in a stronger position to bid for capital funding and grants than those still working from fragmented records.

None of this is about squeezing residents harder. It's about making sure the new authority collects, manages and evidences what it's already entitled to.

Making change in small steps

The greatest risk is not that councils fail to reorganise. It is that they successfully reorganise but inherit the same complexity, fragmentation and inefficiencies that existed before.

Authority leaders will want to spend precious time and resources working on things that give them more influence over the trajectory of their financial resilience. They need sure bets that can increase productivity and enhance service capabilities without needing to take a leap of faith. The ideas above are exactly the kind of moves that can help achieve this, but they can't work as isolated initiatives. Together they should form the foundations of a more efficient and connected authority.

Not every system or process can be redesigned at once either. Councils should start with the journeys and pressure points that matter most: where hand-offs are slowing services down, where duplicated processes are adding cost, where data gaps are increasing risk, or where staff are spending time searching for information instead of supporting residents. These are the places where a small change delivers a visible result.

By taking a practical, incremental and phased approach, councils can use LGR to shift away from critical care and towards financial resilience, improved services and becoming a future-ready authority. These councils will not just emerge reorganised. They will emerge stronger.

Because how do you lay proper foundations in a hole? One spade at a time.