Beyond the budget boost: closing the digital gap in local government and public services

Delivering transformative services across local councils has never been more challenging than now. Shrinking budgets, rising demand and overstretched resources have led to the biggest crisis in local government in decades. 

In light of this, the UK government has sought to invigorate a fractured funding system. This included announcing a £69 billion financial settlement for 2025-26 — a 6.8% increase in cash terms — with £600 million being directed through a one-off Recovery Grant to support councils with historically low tax bases and higher levels of deprivation, bridging them through to the upcoming multi-year settlement. This also included £3.4 billion in new grant funding, which will be allocated via the multi year local government finance settlement. 

Amid this capital injection, the critical question remains: what role will technology play in driving the systemic upgrades urgently needed across councils and public services? In practice, digital capability is no longer optional. It is the primary mechanism through which councils can translate funding into sustainable outcomes. The risk is clear — without a fundamental shift in service delivery, councils will continue managing decline rather than fostering growth and improving outcomes for their communities. 

From capital injection to lasting capability 

The State of Digital Government Review acknowledges declining satisfaction (from 79% to 68%) with digital services over the past decade, driven by fragmentation, under-digitisation and the challenges of modernising long-standing systems. Success requires investment not only in platforms, but also in the people and processes that enable those platforms to deliver recurring savings. If the public sector wants rapid returns on Budget choices, the answer isn’t bigger one-off projects. It’s interoperable platforms, targeted revenue support for operational teams and commitment to shared procurement and standards. 

We’re witnessing a strategic pivot from simply maintaining operational systems to empowering councils with proactive, preventative capabilities that reduce demand and strengthen long-term performance. The challenge is compounded by legacy technology. Maintaining these outdated systems costs three to four times more than modern alternatives. Alongside this hurdle, 70% of organisations report poor data coordination and interoperability, a critical barrier to effective AI adoption. Without resolving these foundational digital issues, councils risk layering AI onto broken systems, amplifying inefficiency rather than eliminating it. 

AI as an enabler, not a silver bullet 

AI is often hyped as a game-changer, and rightly so. From pharmaceuticals to manufacturing, its potential is transformative. However, in local government, the real value of AI lies not in disruption but in disciplined optimisation. For typical government organisations, AI simply represents a step up in efficiency and capability, not a complete overhaul. It won’t change what you do, but can vastly improve how you do it, making services better, cheaper and faster. That’s why the pathway to AI adoption, and how funding is allocated, is crucial. Capital investment can fund cloud migrations, training and integration programmes, but it cannot address the recurring costs of organisational change required to realise lasting benefits. This tension is especially acute in the context of local government reorganisation, which offers both scaling opportunities and transition risks that could starve services of operational resources. 

The danger many digital directorates run into with AI is knowing where best to start applying it. A critical early consideration is the quality and suitability of the data available to train AI systems, as numerous initiatives have failed due to reliance on incomplete, unrepresentative or low-quality data, resulting in embedded bias and unreliable outcomes. Take, for example, a pandemic-era AI tool designed to detect COVID from chest x-rays — it only learned to distinguish whether a patient was lying down or standing. The tool seemed to be correctly guessing which patients had COVID, but only because they were more likely to be ill and lying down in the hospital. You don’t need to be a data expert to ask the right questions. 

When you’re considering a potential organisational goal that AI could help you achieve, ask yourself: where does your data come from? Who’s validated it? Is it reflective of the real world? Are there inherent biases and what can you do to mitigate them? Without high-quality data, even the most advanced AI tools are ineffective. 

For public services, technical performance alone is not enough — AI must also be explainable, ethical and trusted by citizens. 

Making technology work for your region 

Practical examples show how targeted digital investment can translate into measurable local impact. One of the clearest opportunities lies in revenue and debt management, where better data can improve outcomes for both councils and citizens. 

Debt collection remains a significant area of concern for many local authorities, with council tax and business rates comprising over half of local councils’ annual revenue, funding vital services from bin collections to leisure facilities. Accurate, timely collection — alongside an up-to-date register of local businesses — is essential, yet data quality is often a major barrier. Fragmented, duplicated or outdated records prevent councils from responding appropriately to different circumstances, putting strain on finances while risking poor outcomes for residents. 

A thorough ‘data cleanse’ to create a single, trusted repository of accurate, deduplicated and current data is the essential first step. In practice, this enables earlier intervention, more tailored support for residents in difficulty, and more effective enforcement where appropriate, shifting the focus from reactive recovery to prevention and engagement. 

Finding the capital and making it work 

Digitisation has the potential to unlock over £45bn annually in unrealised savings and productivity benefits across the UK public sector, representing 4–7% of total spend. However, realising this value requires committed, upfront investment. Research shows only 39% of councils have dedicated budgets for new digital systems, and 65% of digital leaders believe current funding models are inadequate. This calls for a behavioural shift among local and public sector leaders towards sustained investment in new technology.   

Identifying where AI can add real value is just the start. The final, critical step is validation: defining clear criteria for AI to be trusted, effective and fit for real-world use. This requires senior ownership, clear governance and a willingness to treat digital investment as core infrastructure, not discretionary spend. Without robust validation, even the strongest use cases and data foundations will fall short.