Reforms to council funding announced

The government has announced reforms to council funding, intended to ensure that it offers better value for money.

A consultation will be launched next month.

The proposals build on the lessons learned through the previous government’s review of Relative Needs and Resources, better known as the ‘Fair Funding Review’, which highlighted the problem of how councils are funded and the need for change. The results were never implemented.

The reform will be launched alongside a consultation on the Provisional Local Government Finance Settlement for 2025-26, which includes a new £600 million Recovery Grant for areas most in need, an increase to the Social Care Grant by £680 million, a new £250 million Children’s Social Care Prevention Grant and the repurposing of grant.

It is anticipated that local government is expected to receive a real-terms increase in Core Spending Power of around 3.2% and no council will see a reduction in this after taking account of any increase in council tax levels.

Deputy Prime Minister Angela Rayner said: "For too long councils have been let down by an outdated and inefficient funding system which has led to public services creaking and taxpayers’ money not being spent efficiently.

"Whilst there’s no magic wand to fix what we’ve inherited, we’re taking the necessary steps to fix the foundations of local government by creating a fairer system and ensuring every penny is spent on the services so many people rely on every day."

The Provisional Local Government Finance Settlement for 2025-2026 will maintain the previous government’s referendum threshold for council tax at 3 per cent with 2 per cent for the adult social care precept.

The government also said it would provide support to the public sector, including local government, to meet the increased costs of directly employed staff arising from changes to employer National Insurance Contribution (NICs).

Grants including the Rural Services Delivery Grant and the Services Grant will be repurposed. Places with a significant rural population will still on average receive around a 5 per cent increase in their Core Spending Power.

Councils are also set to receive over £1 billion in total through the Extended Producer Responsibility for Packing scheme (pEPR).

Cllr Louise Gittins, Chair of the LGA, said: “It is positive today’s statement has pledged to deliver a programme of reform that fixes the foundations of local government, commits to multi-year settlements as we have previously called for, and reforms public services with a focus on prevention.

“The extra funding in the recent Budget will also help meet some, but not all, of the significant pressures in adult and children’s social care, SEND and homelessness support.

“However it is vital the forthcoming provisional Local Government Finance Settlement also now fully funds the changes to employer national insurance contributions included in the Budget.

“This will lead to a £637 million increase in councils’ wage bills for directly employed staff, and up to £1.13 billion through indirect costs via external providers including up to £628 million for commissioned adult social care services.

“Without action, councils will be forced to make further cuts to statutory services, and risk not fulfilling some of their most important duties.

“In the meantime, we look forward to the provisional settlement so we can fully understand the implications of today’s announcements for individual councils.

 “We also look forward to working with government as part of the relationship reset between central and local government to co-create the key services and outcomes for local authorities to deliver, in the context of locally-set priorities and a robust system of accountability and oversight.”