We are fixing the foundations of local government, whilst protecting local taxpayers from excessive council tax increases. Today we are outlining plans to overhaul council funding to offer better value for money.
After a decade of cuts and fiscal mismanagement inflicted by the last government, compounded by spiralling inflation and a failure to grow our economy, councils of all political stripes are in crisis. The last Tory Government left behind an outdated and inefficient model that saw some councils increasing their level of reserves and others struggling to deliver services and balance budgets.
Our fiscal inheritance means that there will be tough choices on all sides to get us back on the path to recovery, and it will take time.
This Labour Government is shifting to a fairer system which will get better value for taxpayers’ money and matches funding with need.
We are kickstarting funding reform to end unfairness and better use taxpayer cash, boost councils in deprived areas next year amid the overhaul, provide a 3.2% real-terms funding increase for 2025-26.
The Autumn Budget announced over £4 billion in additional funding for local government services, £1.3 billion of which will go through the Local Government Finance Settlement.
Outside of the Settlement, the government has also announced additional funding to support local government across a range of priorities, including special educational needs and disabilities (SEND) and homelessness services, a guarantee of funding for the Extended Producer Responsibility for Packaging (pEPR), as well as funding for potholes.
The long overdue reforms we are setting out today will ensure better value for money, alongside more money for councils to help fix the foundations of local government.
Overall, 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. On average, places with a significant rural population will receive an increase of around 5% in their Core Spending Power, and will be better off this year compared with 2024-2025.
Key Announcements:
- The government will launch a consultation with local leaders next month on its long- term proposals to fundamentally improve the way the sector is funded. This major reform will ensure public money is spent more efficiently through a fairer system.
- The Conservatives’ Government’s ‘Fair Funding Review’ highlighted the problem of how councils are funded and the need for change but they failed to act. The Tories knew there was a problem but failed to take the touch choices necessary to protect taxpayers’ money. This Labour Government is tasking the tough decisions to spend more efficiently, improving the services that local people rely on.
- It 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 Grant and the ending of inefficient grants – including the Rural Services Delivery Grant – to offer better value for money for the taxpayer.
Overall, 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. Places with a significant rural population will receive an uplift of 5% in cash-terms, and will be better off compared this year compared with 2024-2025.
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.”
Local Government Minister Jim McMahon said:
“As a former council leader I know all too well that local authorities have been struggling and that the whole system needs reform.”
“That’s why this long overdue overhaul to council funding is vital in allowing all of us to fix the foundations and plan for the long term.”
“We recognize that people need to see improvement, they need to feel it and people need to know that the places where they live feel better, more secure, that they have greater say on decisions that affect their lives.”
“So this statement sets out our plans to start the process of ending wildly inefficient grants and directing valuable taxpayers’ pounds where need is greatest.”
“We are moving away from an outdated approach – which has seen some councils increasing their level of reserves and others struggling to deliver services and balance budgets – and shifting to a fairer system.”
“We are learning lessons quickly as a new government and are taking the tough choices that will not only reset our relationship with local government but make a real change to people’s quality of life.”
