Financial resilience in local government

Four questions to build stronger balance sheets

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; invest in digital transformation while managing the day-to-day financial firefighting.

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 to unlock new efficiencies and improve the citizen experience. However, Civica's recent Public Sector Financial Resilience Report, in which we surveyed senior professionals from across the public sector, found nearly half (48%) of local authorities describe their current financial position as severe or critical. Conditions that were once exceptional are now routine.

Establishing greater financial resilience must be a key driver of digital transformation in these challenging times. Yet these stark statistics are also a reminder of the balancing act that is required between protecting operational continuity and laying digital and data foundations needed to ease pressures.

For councils facing severe financial pressure, digital transformation is increasingly the mechanism through which financial resilience is achieved. The challenge is identifying where transformation efforts will deliver the fastest and most meaningful impact.

So, where to 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.

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

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 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. Clean your data estate to create a richer picture of resident needs. This will support more early intervention in areas such as housing maintenance, social care or debt management, for example, which will 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 we earn more as well as spend less?

Financial resilience is not only about reducing costs, but also about income optimisation. Better data and evidence can help to consolidate commercial assets, improve revenues collection rates and maximise grant income.

Start with what's already owned. Merging commercial assets – property, land, leisure and commercial estates – creates a single portfolio that can be managed for yield rather than administered piecemeal.

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 tomorrow’s authority collects, manages and evidences what it's already entitled to.

Making change in small steps

Authority leaders want sure bets in their digital transformation strategies; those 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 shift away from critical care and towards financial resilience, improved services and becoming a future-ready authority.

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