GBP 2.3 Billion
This is the funding gap facing English councils in 2025/26, according to Local Government Association analysis published in October 2024.2 Not a projected shortfall. Not a warning. The arithmetic of what councils need minus what the government provides.
By 2026/27, LGA analysis shows this gap rises to GBP 3.9 billion.3 Over two years, English councils face a cumulative GBP 6.2 billion hole in their budgets.
Stay with me. This next part matters.
One in four councils say they are likely to need emergency government bailout in the next two years.4 The LGA's own language is unusually direct: "The risk of financial failure across local government is potentially becoming systemic."5
Into this context, EPR arrives with GBP 1.1 billion. You might think this helps. You might think councils will use this money to buy new recycling trucks, open sorting facilities, expand kerbside collections.
That is not what the structure produces.
65%
This is the proportion of a typical English council's budget consumed by adult social care and children's services, according to County Councils Network analysis from March 2024.6 For county councils specifically, the figure is 69%.7 For upper-tier authorities, CIPFA data from January 2025 shows the proportion has reached 78%.8
I'll say that again, because the number is easy to hear and difficult to absorb. In some councils, nearly four-fifths of the entire budget goes to social care.
These are statutory obligations. Councils cannot choose not to pay them. A child in care must be cared for. An elderly person requiring support must be supported. The law demands it.
What remains after social care is funded? Everything else a council does: libraries, parks, roads, planning, housing — and waste collection.
LGA analysis of MHCLG data shows that from 2022-23 to 2024-25, councils overspent their children's social care budgets by an average of 14.2% per year.9 Adult social care overspend averaged 5.2% over the same period.10 These are not one-off crises. These are structural features of the system.
And then there is homelessness. London Councils' analysis shows boroughs spent over GBP 900 million on homelessness in 2024-25 — an overspend of at least GBP 330 million, or 60% above their allocated budgets.11
When you are overspending by 14% on children, 5% on adults, and 60% on homelessness — when two-thirds or more of your budget is already consumed by obligations you cannot escape — what do you do when new money arrives?
You use it for the emergencies you are already failing to fund.
Of course. Why wouldn't you?
Section 114
This is the mechanism of effective bankruptcy for English councils. When a council's chief financial officer determines that the authority cannot balance its budget, they issue a Section 114 notice. All new spending stops. Only statutory services continue.
Between 2018 and 2023, eight councils issued Section 114 notices — eleven notices in total, as some councils issued multiple.12 The list reads like a roll call of financial failure: Northamptonshire in 2018 (twice). Croydon in 2020 and 2022 (twice). Thurrock in 2022, with debts of GBP 500 million. Woking in June 2023, carrying a GBP 1.2 billion deficit. Birmingham in September 2023 — an in-year shortfall of GBP 87 million, with an equal pay liability of GBP 760 million. Nottingham in November 2023.13
These are not abstract statistics. Birmingham is the largest local authority in England. Its effective bankruptcy was not a warning. It was an event.
And the projections suggest this is only the beginning.
London Councils' analysis indicates that half of London boroughs — seventeen — could require Exceptional Financial Support or face Section 114 risk by 2028.14 Seven already require emergency measures: Lambeth, Newham, Havering, Croydon, Enfield, Barnet, Haringey.15
Half of responding councils in a Local Government Information Unit survey warned they may issue Section 114 notices within the next five years.16
Half of English councils, facing effective bankruptcy within five years. Into this landscape, EPR arrives with GBP 1.1 billion for recycling.
GBP 0 (hard ring-fenced)
This is the amount of EPR funding that is hard ring-fenced as a separate grant line; EPR is paid as council income with use-conditions, but budgets remain fungible.
The government has stated that councils "must use this funding to deliver improved packaging waste collection services."17 But the enforcement mechanism — PackUK's power to reduce future allocations if funds are "used for other purposes" — has never been tested.18
The question is whether the government will actually investigate which councils are diverting EPR funds to social care, and then punish those councils by reducing their recycling budgets. The political mathematics of this seem challenging.
But more fundamentally, there is a mechanism that makes ring-fencing irrelevant even if it existed.
The Substitution
At the EPR Conference in November 2025, representatives of LARAC — the Local Authority Recycling Advisory Committee — argued that ring-fencing was ineffective. Their assessment was blunt: the concept amounts to an "urban myth."19
Their explanation was precise. Dedicated EPR funds, they said, "simply replace existing council budgets rather than providing additional resources."20
This is the mechanism that transforms the promise of EPR into something different from what producers were told they were paying for.
Here is how it works.
When EPR funding arrives, it is classified as council income. The government's provisional Local Government Finance Settlement for 2026-27 notes that councils will receive GBP 1.2 billion from EPR.21 In practice, councils can reallocate within their overall budgets, even where EPR comes with use-conditions and potential future-allocation penalties.
The provisional settlement notes the expected scale of EPR payments, but it does not state that general grants will be reduced pound-for-pound. Whether EPR is additional in net terms depends on future funding decisions and (more immediately) councils' internal budget reallocation.
THE RECEIPT: WHERE EPR GOES
| Source | Flow |
|---|---|
| EPR Income Received | + GBP 1,100,000,000 |
| Baseline Grant Adjustment | (adjustable) |
| Net Additional Recycling Investment | undetermined |
The receipt cannot be completed because the endpoint is not fixed. EPR money is not additional. It is substitutional. It replaces funding that would otherwise come from general grants.
The councils' own trade body said it plainly: ring-fencing does not work as advertised. The money simply replaces existing budgets.
The Baseline That Does Not Exist
To understand why this happens, consider what councils have already cut.
Institute for Fiscal Studies analysis shows that between 2010-11 and 2019-20, central government funding for councils was cut by 46% in real terms.22 Spending per person on environment services — the category that includes waste collection — fell significantly during this period, with broader environment budgets cut by around 40%.23
Councils did not stop collecting bins. They found efficiencies, reduced frequencies, simplified sorting, merged services. But the money was already gone. The IFS analysis indicates that funding since 2020 has not restored cuts from the prior decade.24
When EPR arrives, it lands on a baseline that has been eroded for fifteen years. It does not restore services to previous levels. It does not fund expansion. It arrives at a level roughly equivalent to what councils were spending on waste before the cuts — and the settlement structure ensures it substitutes for, rather than supplements, existing allocations.
The Opposition
The Local Government Association's position on ring-fencing is consistent and principled.
Daisy Robert, speaking for the LGA, stated: "We reject the call to ring-fencing that says funds can only go on collections. That is, in practice, a call for industry control of council waste services."25
Cllr Arooj Shah, the LGA's environment spokesperson, added that "decisions about collections and services must remain in the hands of communities, not handed over to producers whose priority will inevitably be profit."26
This is not an unreasonable position. Democratic accountability has value. Elected councils should, in principle, respond to local priorities. The idea that producers might dictate how local services operate is genuinely concerning.
But consider what this principle produces in practice.
When a council must choose between maintaining a children's home and improving recycling, it will maintain the children's home. When it must choose between temporary accommodation for homeless families and new collection trucks, it will house the families. These are not failures of values. These are rational responses to impossible constraints.
The principle of democratic discretion, in the context of a GBP 2.3 billion funding gap and a 65% budget lock in statutory services, becomes the freedom to choose which emergency receives inadequate funding.
The Ledger
If the brand pays the producer obligation, the money flows to councils. If the councils face a funding gap, the money addresses whatever emergency is most acute. If social care consumes two-thirds of the budget, the remaining third competes for everything else. If Section 114 looms, every discretionary pound is diverted to preventing bankruptcy.
Each actor in this chain is behaving rationally. The brand pays because the law requires it. The council diverts because the alternative is effective bankruptcy. The government permits substitution because ring-fencing would create political conflict with councils.
This is not failure. This is the system working as designed.
Producers believe they are paying for recycling. Consumers believe their packaging is being collected more efficiently. The government announces GBP 1.1 billion for improved services.
But the ledger shows something different.
EPR money arrives. General funding adjusts. The net investment in recycling infrastructure remains approximately what it was before — or perhaps less, as councils prioritise the emergencies they cannot legally ignore.
The packaging producers have paid. The recycling has not improved. The money has gone somewhere, but the destination is not what the receipt suggests.
Now you have seen how the structure works. You understand why the money flows in one direction and the services remain static. You can read the next government announcement about EPR investment and ask the question: is this additional, or substitutional?
The ledger is visible now.