Local authorities face a dual challenge: escalating demand for temporary accommodation and mounting compliance obligations under the Consumer Standards.
The number of households in temporary accommodation reached record levels in 2025, driving costs to £2.8 billion—a 25% increase year-on-year, with £844 million spent on emergency B&Bs and hostels. Rising homelessness has placed unprecedented strain on budgets and frontline services.
Alongside these pressures, local authority landlords are under scrutiny from the Regulator of Social Housing. Inspections since April 2024 reveal 62% of councils assessed have serious or very serious failings (C3 or C4 gradings) against Consumer Standards. Common issues include poor data quality, ineffective compliance systems, and large backlogs of overdue repairs.
The housing crisis deepens
Annual Local Government Risk Report 2026
Local government reorganisation - can councils stay in control?
Local government is operating in one of the most challenging environments in decades. Financial pressures, structural reforms, rising service demands, and technological disruption have converged to create unprecedented complexity. Added to this the surge in temporary accommodation costs, SEND deficits, and the rapid adoption of AI - all of which are making the risk landscape evolve faster than ever.
Internal audit must step up as a strategic partner instead of just a compliance checkpoint. That means embedding foresight into governance, providing real-time assurance during transformation, and using data analytics to spot early warning signs.
Local authorities are under growing pressure to deliver efficiency through structural change, but reorganisation brings its own set of risks that can’t be ignored.
Major transformation programmes often create governance fragmentation, unclear accountability, and overlapping responsibilities.
These issues can disrupt decision-making and weaken service delivery at a time when public confidence is critical. Service disruption is a real risk if changes are poorly planned or communicated, and workforce uncertainty can erode morale, retention, and productivity.
Proactively managing risk
The statutory override for Special Educational Needs and Disabilities (SEND) has been extended to March 2028, providing temporary relief but leaving fundamental challenges unresolved.
National SEND deficits now exceed £6 billion, creating significant financial risk for local authorities once the override expires.
This extension buys time, but not a solution.
Agentic AI is here
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£1.8bn -
£2.6bn
of those not already using AI expect it to have significant future use
44%
use AI for the delivery of services
55%
use AI for internal process
71%
AI has moved from pilots to embedded capability across productivity suites and business systems.
The rise of agentic AI, systems capable of initiating actions across software and triggering workflows autonomously, marks a significant shift in how technology supports local government operations.
While these technologies offer opportunities to improve efficiency and service delivery, they also introduce new risks that require robust governance and proactive oversight.
AI adoption is becoming a standard feature of core systems. Councils that act now to embed strong governance, mature data practices, and proactive assurance will be best placed to harness AI’s benefits while mitigating its risks.
Karen Murray
Contact
UK Head of Public and Social Sector
Proactively managing risk in 2026
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SEND statutory override extended to 2028, but risks remain
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Making a proactive contribution to our communities and wider society has always been fundamental to our values and the way we do business. We are proud of our long-standing relationship with the local government sector, acting responsibly in the public interest and helping build the economic foundations of a fair and prosperous world.
Local Government
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Watch our webinar to understand how the Failure to Prevent Fraud Offence will impact the public sector and what you can do now to prepare for its implementation on 1 September 2025.
Failure to prevent fraud in the public sector
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Public and social sector insights
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Estimated national savings over five years from local government reorganisation
in SEND deficits have been reached
of councils now use AI-enabled tools in core systems
80%+
C1
26
5
0
Housing associations vs local authority RPs
39
C2
C3
C4
4
17
31
3
Local authority
Housing associations
£6bn
in SEND deficits have been reached
Contact
Partner - Risk Consulting
Graeme Clarke
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