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How AI Can Transform Local Government Services and Boost Efficiency by £8 Billion Annually
Local councils face rising demands and funding gaps, risking service backlogs and public dissatisfaction. AI could save £8 billion annually, easing workloads and improving local services.
Executive Summary
At the start of the 20th century, local government was a driving force behind national progress. Councils addressed rapid urban growth by building housing, improving public health infrastructure, and laying the groundwork for the welfare state.
Today, local governments face equally urgent challenges: an ageing population, housing shortages, and rising public health demands. Yet, by 2029, councils in England will require an additional £16 billion compared to 2020 to maintain services. Many are cautious about adopting innovation, even as they must do more with less.
To manage pressures, councils have extended waiting times, drained reserves, and shifted resources toward statutory services, but backlogs persist. The current operating model is stretched thin. Despite high local taxes, many councils are nearly bankrupt. Residents face long waits for care, planning approvals, and benefits, with many missing out on entitled support. Public satisfaction is declining.
Artificial intelligence offers new tools that can help councils perform daily tasks faster, better, and cheaper. AI can automate routine work, easing staff workloads and improving citizen experiences. It also supports smarter, long-term decision-making crucial for economic growth.
The Tony Blair Institute’s series Governing in the Age of AI explores AI’s potential in government. Building on previous work focused on central government and the Department for Work and Pensions, this analysis examines how AI can transform local government.
Partnering with one local authority, the Institute mapped tasks against a database of 19,000 AI-relevant activities. The findings show AI could automate or improve at least 26% of tasks, saving one million staff hours annually—equating to a £30 million productivity gain for that council.
Scaling this nationally across England and Wales suggests a potential annual saving of 380 million hours, worth £8 billion or £325 per household. These savings could speed up services, relieve workforce pressure, bring services back in-house, and enable preventative approaches.
Local governments, smaller and more flexible than central bodies, are well-positioned to pilot AI innovations. However, decades of policy centralisation and fragmented data systems limit their ability to innovate. Few councils currently have the infrastructure, skills, or confidence to scale AI solutions.
Some councils like Newham, Hertfordshire, and Hammersmith & Fulham are experimenting with AI, but national mechanisms to spread success are lacking.
The government’s move to create unitary authorities and devolve power offers a chance to reshape local government. To seize this, the creation of a Devolved AI Service (DAIS) is proposed. DAIS would act as a cooperative platform supporting local innovation by providing governance, building AI tools, improving infrastructure, and developing local capabilities.
Seed funding could come from the Department for Science, Innovation and Technology and the Ministry of Housing, Communities and Local Government, with DAIS moving toward self-sufficiency through subscriptions and international tool licensing.
Early DAIS adopters should pilot three flagship programmes:
- AI co-workers in high-volume services: For example, AI could assist social workers in clearing care assessment backlogs rapidly.
- Local Navigation Assistant (LNA): An AI tool to help citizens understand services, check eligibility, and track applications, reducing unnecessary contact and freeing up staff time.
- Data and decision-making platforms for planning: AI-assisted local plan development and streamlined planning processes could improve decision quality and save planners’ time.
These AI services must be implemented responsibly, ensuring decisions are predictable, explainable, accountable, reversible, and sensitive to communities’ needs.
Meanwhile, councils can immediately promote AI innovation by adopting proven tools, sharing best practices, standardising data, and attracting digital talent. With these steps, local government can regain its role as a catalyst for community transformation and economic growth.
The Need to Reimagine Local Government
Local government plays a central role in daily life, overseeing over 800 public services through 317 local authorities in England and 10 combined authorities. Their responsibilities include statutory services like elderly care and homelessness support, economic growth via planning, and business development.
Key Roles of Local Authorities
- Commissioning services: Identifying community needs, specifying services, and procuring providers.
- Service delivery: Operating citizen-facing services such as waste collection, transport, and financial aid—often in partnership with national organisations.
- Planning: Managing land use for housing, infrastructure, and commercial projects, plus handling planning applications.
Over the past 15 years, councils have been asked to do more with shrinking budgets. For example, public health responsibilities expanded in 2013, but funding was cut in real terms from 2015 to 2024.
Demand for statutory services outpaces funding. By 2029, local services will need almost £16 billion more than in 2020, pushing councils to their limits.
To cope, councils have taken three main approaches:
- Longer waiting lists and rationing: As of March 2024, over 78,000 people waited more than six months for care assessments. Thousands of elderly people died waiting for care in 2022–23. Planning applications are also delayed, worsening housing shortages.
- Raising council tax: Around 85% of top-tier councils raised taxes by the maximum allowed in 2025–26, but this is insufficient. Many councils have tapped reserves, causing some to declare bankruptcy.
- Diverting funds: Money moves away from economic development and planning toward statutory social care. Currently, social care consumes nearly 65% of local government budgets.
Despite these efforts, backlogs grow and public satisfaction declines. Over 1.6 million older people have unmet care needs, and England leads Europe in homelessness rates.
The current model cannot sustain these pressures. It is bureaucratic, labor-intensive, and reactive. AI offers a chance to improve efficiency and create space for long-term planning and transformation.
Historical parallels show local government once had the resources and freedom to drive major change. Now, facing similar challenges, it needs AI-enabled capabilities to deliver effective services and economic growth.
The Potential Impact of AI in One Council
Improving local government starts with understanding its operations. Previous analyses divided tasks into three categories: citizen engagement, operations, and decision-making, estimating AI could unlock £40 billion in annual productivity gains across government.
Further work focused on the Department for Work and Pensions predicted up to 40% time savings using AI, equivalent to nearly £1 billion per year.
Applying this framework, one council’s operational data showed AI could automate or improve 26% of tasks, saving one million staff hours and nearly £30 million annually.
Time savings span salary bands, with middle pay grades seeing the largest monetary gains due to role concentration.
Extrapolating nationally to all local authorities in England and Wales suggests a potential productivity gain of £8 billion annually, saving 380 million hours—a figure equal to £325 per household.
These savings could improve service speed and quality, ease workforce pressures, reverse outsourcing trends, and support preventative service models. However, success depends on strengthening innovation foundations.
The Case for a Devolved AI Service to Scale AI-Enabled Transformation
Local governments, smaller and more agile than central bodies, can pilot AI tools effectively. But transformation requires support. Over 40 years, policy centralisation and neglect of local delivery roles have left councils under-resourced for AI adoption.
Some councils are leading AI efforts:
- Newham: Partnered with a university to develop low-cost AI tools for high-pressure services like temporary housing and social care.
- Hertfordshire: Trialling AI robots to detect and repair road defects proactively.
- Hammersmith and Fulham: Using AI analytics to enhance CCTV monitoring and piloting sensors for damp and mould detection in housing.
These projects are early-stage and cover only a small fraction of councils—just 4% report innovative AI use.
Successful AI adoption requires strong leadership, innovation-friendly culture, sustainable funding, quality data, and skilled staff. Many councils lack these, hindered by risk aversion, short-term ROI demands, data fragmentation, and skills shortages.
Digital and data roles make up only 2% of local government staff, half the public sector benchmark, increasing dependence on outsourcing and eroding internal capacity.
Additionally, fragmented data and limited cloud infrastructure impede scaling AI tools.
Institutional barriers also include organisational siloes and market dominance by a few technology providers. Councils often duplicate efforts, negotiate individually, and face high costs for tailored solutions.
Addressing these challenges calls for coordinated action and shared infrastructure to enable cost-effective, scalable AI innovation in local government.
For government professionals interested in AI capabilities, exploring targeted AI training courses can build relevant skills and support digital transformation initiatives.