Councils in the UK added £7.8bn to their growing debt pile in the space of a year
Bootle Town Hall(Image: Andrew Teebay Liverpool Echo)
Councils across the Liverpool City Region have reported a £220m increase in debt over the last financial year. Those figures are part of a wider trend across councils in the UK, which shows that local authority debt has risen by £7.8bn in the space of a year.
According to analysis of data from the Ministry of Housing, Communities and Local Government (MHCLG), UK councils owe a combined £122.2bn to lenders, equivalent to £1,791 per resident, as of April 2025. According to the BBC’s Shared Data Unit, this means UK councils have added £7.8bn to their growing debt pile in the space of a year – up 7% from a total of £114.5bn one year ago.
Councils can borrow funds to invest in projects such as schools, leisure centres and theatres. Local authorities can also borrow to invest in property that will bring in an income over and above repayments on the debt.
However, the data shows the recent rise in debt is being partly driven by a near tripling of short-term lending from the central government. In some cases, these funds are being used to paper over holes in some council revenue budgets rather than pay for investments and town centre improvements.
Experts, including Jonathan Carr-West of the Local Government Information Unit (LGIU), said the spiralling levels of debt at local authorities were “extremely worrying”. He said: “That is not a sustainable system. As one local government finance officer said to me, it’s essentially payday loans for local governments.
“I don’t think the government would say that’s its long-term ambition. They would say that is what we have had to do to paper over the cracks while we introduce a new funding system for local government.”
Last year, the BBC’s Shared Data Unit reported on the spiralling debts seen at town halls across the country. It found borrowing had reached “staggering” levels at some councils, according to chair of the Public Accounts Committee Dame Meg Hillier.
The money, borrowed largely from an arm of the Treasury, had been used to buy hundreds of commercial assets, from shopping centres to office parks, cinemas, energy companies and housing developments, all with the aim of returning a stream of income. Many council leaders said they had no choice but to invest in order to fill the gap in income they used to receive from the government under the revenue support grant.
Though that grant has increased in the years since the pandemic, core spending power for local authorities is around 18% down per person compared to 2010, the Institute for Fiscal Studies found.
In recent years, various commentators have warned that the debts held by councils – which must balance their budgets every year—are unsustainable. In 2020, Dame Meg said the government was “blind to the extreme risks” of council borrowing levels.
The data shows an increase in debt amongst five of the six local authority areas of the Liverpool City Region, with St Helens bucking that trend, with its debt actually decreasing by 0.01%. Liverpool council’s debt increased by £28.7m (3.33%), Knowsley’s increased by £11m (9.79%) and Halton’s increased by £25m (12.08%).
Second highest in the LCR is Wirral Council, which reported a debt increase of £74.22m (25.5%). However, the highest debt increase in the LCR was posted by Sefton Council, which reported debts of £81m – a 66.63% increase from the previous year.
That statistic breaks down to a reported debt per person spend of £717.78, up from £430.76 from the previous year. This places Sefton Council as having the seventh-highest debt increase in the UK and the highest in any local authority north of England.
A spokesperson for Sefton Council said: “While the Council’s overall debt has gone up in 2024/25, it’s important to note that the figure for the previous year was only provisional. The final audited figure shows that debt actually rose by £66m, not £81m.
“This increase comes down to three main factors. We’ve invested around £14m in local projects, we’ve drawn on some of our reserves specifically to support investment in children’s and adult social care, and, like many councils across the country, we’re facing huge pressures on High Needs funding, which added around £29m to our position.
“Even with these challenges, Sefton still has the second lowest debt per person anywhere in the Liverpool City Region – and our debt per person is less than half the England average of £1,688.
“That reflects our continued careful and responsible financial management.”
Responding to a request for comment, a spokesperson for Wirral Council referred the LDRs to its published draft Statement of Accounts and said – at the close of 2023/24 – the council had total loans of £305m on the balance sheet. Adding that by the end of 2024/25 this figure had risen to £374m, equating to an increase of £69m over the financial year.
Addressing its own financial challenges, a Knowsley Council spokesperson said: “The information relates to the levels of borrowing undertaken by the Council as part of its wider Treasury Management Strategy. Knowsley’s Treasury Management Strategy for 2025/26 was approved by the Council on 5 March 2025.”
Knowsley’s local authority added: “The Council continues to operate in a very challenging financial climate – with continuing financial pressures from rising demand and rising costs. These spending pressures continue to highlight the importance of the council’s commitment to sound financial management and long-term decision-making.
“The Council has worked hard to increase the income we generate locally by attracting more residents and businesses into the borough as well as accelerating the development of new homes offering choice in terms of size, location and budget. With this approach at the heart of its financial strategy, Knowsley Council has remained in a relatively stable financial position in recent years—reporting a balanced budget for the last five consecutive years and negating the need to cut services or jobs.
“However, the future impact of these financial challenges will increase the pressure on council budgets significantly in the coming years. The council remains concerned that to address these challenges, future levels of funding provided by central government must be properly aligned to need and that the improved recognition of deprivation factors is essential to ensuring that funding goes to where it is needed most.”