Inside the 2026 risk landscape: Top risks for Local Authorities

Drawing on insights straight from our Local Government Risk Report 2026, the webinar provided a deep dive into the risks reshaping local government and the role of internal audit, including:

• Financial sustainability risks – the rise in Exceptional Financial Support and ongoing demand pressures. 
• AI in local government – how councils are using AI to create value, emerging areas of risk, and what ‘good’ governance looks like in practice.  
• Local government reorganisation – implications for governance, accountability, decision making and service continuity.  
• SEND and temporary accommodation pressures – why these factors continue to challenge long term solvency.

Key summary

In 2026, local authorities face an increasingly complex and pressured risk landscape characterised by rising demand, workforce shortages, escalating costs, and rapid policy change, all of which strain their capacity to plan and prioritise effectively. Although the introduction of a multi-year financial settlement provides much‑needed stability, it does not resolve the fundamental structural challenges affecting council finances, including growing homelessness pressures, SEND deficits, and persistent demand in adult social care and housing.

Against this backdrop, local government reorganisation represents both a major opportunity and a significant risk: councils must secure early clarity, treat reorganisation as a multi-year transformation programme, retain key staff, agree common datasets, and ensure core functions (like paying staff and suppliers) remain uninterrupted. Strong governance, therefore, becomes critical, as governance failures have featured prominently in recent high‑profile council failures. Internal audit has a key role to play here, shifting from retrospective assurance to proactive, real‑time support that strengthens governance, tests financial assumptions, improves risk management, and helps organisations maintain high‑quality, reliable data.

Data quality itself is a major concern. Fragmented, inconsistent data undermines financial planning, automation, compliance, and the ability to harness the benefits of emerging technologies, including AI. While AI offers significant opportunities to create efficiency, improve decision‑making, and address capacity challenges, councils must put in place robust guardrails to mitigate risks such as biased outputs, opaque decision‑making, and over‑dependence on vendor claims. The SEND crisis reinforces the need for early intervention, stronger data, and whole‑system collaboration between education, health, parents, and councils to prevent problems from escalating.

Ultimately, local authorities must move beyond firefighting and adopt a more proactive, forward‑looking approach to risk management, leveraging technology, cross‑sector collaboration, and strengthened governance to navigate the increasingly challenging environment ahead.

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