Addressing the local authority financial crises

“This analysis indicates the Birmingham City Council crisis is likely to be most heavily felt by those on lower incomes"

"Council tax rises most impact those with incomes in the 40% to 60% quintile, representing those who earn between £32,300 and £43,500.”

There is increasing concern about the financial viability of some local authorities with estimates by the Local Government Association (LGA) suggesting that councils in England are facing a funding gap of £4 billion. Councils have limited levers to pull to respond and address the funding shortfall. The main levers are to raise council tax, to cut spending on goods and services or to cut transfers to households. 

This policy briefing analyses the distributional impact of the actions proposed by the Birmingham City Council in 2024/25 and 2025/26 to address its £300m budget deficit.

It considers how different household groups will likely be impacted by the potential policy responses to address the deficit using an economic model - the SEIM-UK. The briefing seeks to provide local governments with the evidence to make better policy decisions.

The analysis finds that all actions tend to hit households on the lowest incomes the hardest. However, the impact of council tax rises is found to be the least regressive option.

Please reference this paper as:

Lyons, M., & Kratena, K. (2024). Policy briefing: Addressing the local authority financial crises. University of Birmingham.

Meet the Authors

Dr Matt Lyons

Matt Lyons joined the City-REDI team in May 2021 as a Research Fellow. He is responsible for developing the team’s regional economic modelling capabilities whilst supporting projects across the West Midlands Regional Economic Development Institute. Additionally, he will contribute to research in the creative industries. 

He is an economic geographer with a specialism in regional economic development. Matt’s PhD describes the extent to which the Cardiff Capital Region City Deal can address the economic development problems of South East Wales through a focus on the creative economy. 

Professor Kurt Kratena

Professor Kratena received his PhD in Economics from the University of Economics and Business, Vienna (1988). In 2008, he defended his habilitation thesis at the University of Klagenfurt.

He worked at the Federal Chamber of Labour of Austria (1986-1992) and had scholarships at the Autonomous University of Madrid (1990-1991) and via the EU exchange of researchers program (SPES) at the University of Valladolid (1992-1993). Research visits were made more recently at MIT and FEEM, Italy (in 2006), Harvard University/ Professor Dale Jorgenson (2011), REAL at the University of Illinois (2013) and the JRC / IPTS in the European Commission (2015).

As a researcher at the Austrian Institute of Economic Research (WIFO), since 1993, the main objective of Dr. Kratena has been the development and application of quantitative methods, especially input-output modelling.

He has also participated in a number of international research projects, in the fifth, sixth and seventh framework programs of the EU Commission, all dedicated to modelling the relationship and interdependencies between economy, energy and environment. Between 2008 and 2011, he developed a new dynamic inter-regional (EU-27) econometric input-output model (FIDELIO) for the JRC / IPTS in the EU Commission.