Written statement on Local Government Finance - Nov 28

Minister of State (Housing, Communities and Local Government) (Jim McMahon): Today, the government has published details on the Local Government Finance Settlement for the next year for councils across England, and our wider ambitions for the sector over the course of this Parliament.

Councillors, officers and frontline staff are due our respect and appreciation for the work they have done to keep services going through very difficult times.

This government is under no illusion about the scale of the issues facing local government. We know that the demand for, and cost of, services has increased significantly – and that this has made the job for councils in recent years much harder. 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. 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.

We are taking immediate action to address these challenges. 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 (‘the 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 for income from the Extended Producer Responsibility for Packaging (pEPR) scheme, as well as funding for local roads maintenance.

However, fixing the foundations of local government requires a programme of reform over the course of this Parliament. After years of delays, we will update the local government finance system. The current funding system is fundamentally broken, wasting taxpayers' money and starving authorities of the funding needed to provide the services we all rely on. The previous government agreed with us on the need to reform the system – proposing a similar approach in its ‘Fair Funding Review' – but where they were unable to, we will finish the job by consulting on and implementing an up-to-date assessment of needs and resources, starting in 2026-27. This will be the first multi-year funding Settlement in ten years.

Reform of local public services, so that they focus on prevention, is also critical if we are to end the cycle of system failure and cost escalation. We will reform the services that have for too long been overlooked by the previous government, to improve outcomes for the most vulnerable residents who rely on them - particularly children's social care, homelessness and rough sleeping, special educational needs and disabilities, and adult social care services.

We will reset the relationship with local government, working as equal partners to ensure that the sector delivers continuous improvement for its communities, operates at the highest standards of probity, and provides value for money; all while giving the sector greater autonomy, certainty and flexibility. We will rebuild the system of accountability and oversight in local government, including an overhaul of local audit, scrutiny and standards, and will consult on strengthening the standards and conduct framework for local authorities in England.

Our upcoming English Devolution White Paper will set out plans for a new governing settlement for England. This includes our landmark programme of devolution and reorganisation: giving powers to local leaders with skin in the game to generate new jobs, skills, and ultimately the growth that our public services rely on; and creating more efficient and accountable local authority structures, moving towards suitably sized unitary councils.

There is no magic wand. It will be a long, hard slog to work with councils to rebuild from the ground up, to deliver the services taxpayers need and deserve. Together, this year's Settlement and our programme of reform mark the first steps towards stabilising and rebuilding local government.

Local Government Finance Settlement 2025-26

This year's Settlement will begin to put us on the right course, spending taxpayers' money efficiently, and ensuring that funding goes to the places that need it most. The Autumn Budget announced over £4 billion in additional funding for local government services, £1.3 billion of which will go through the Settlement. Overall, the provisional Settlement will ensure that local government receives a real-terms increase in Core Spending Power of around 3.2%.

In addition, the government announced at the Autumn Budget that it will guarantee that local authorities in England will receive at least £1.1 billion in total from the Extended Producer Responsibility for Packaging scheme in 2025-26.

In 2025-26, the Settlement will target additional funding to the places that need it most. We will deliver additional funding for a number of priorities, including an additional £680 million via the Social Care Grant; a new Children's Social Care Prevention Grant, worth £250 million; and a new ‘Recovery Grant', worth £600 million, for places with greater need and demand for services (we have used deprivation as a proxy for this) and less ability to raise income locally. This tackles head on the combination of rocketing demand; low tax bases which restrict the ability of local areas to raise income locally; and weakened resilience in many of these councils after substantial central government funding cuts during the 2010s. Alongside this, our commitment can be judged against a guarantee that no local authority will see a reduction in their Core Spending Power in 2025-26, after taking account of any increase in council tax levels. This will provide the protections required for all authorities, including district councils, to sustain their services. Taking into account both money allocated to councils through the Settlement and the pEPR guarantee, every planning and social care council will have more to spend on services in 2025-26 than in 2024-25; and for almost all authorities we expect this to be an increase in real terms.

The government is clear in its commitment to tackle the issues that matter most to rural communities. We are focusing on the services that people rely on, such as social care, where pressures have grown across the country in recent years. This will deliver for rural areas just as it will for the whole country. In this context, funding from the Rural Services Delivery Grant will be repurposed through improved methods to target funding toward areas with greater need and demand for services, whilst investing in the priority services people care about such as adult and children's social care. The government believes that the Rural Services Delivery Grant is outdated and does not properly assess rural need. A large share of predominantly rural councils receive nothing from the Rural Services Delivery Grant. Put simply, it does not do as it claims. This is clearly not right, and the government is keen to hear from councils about how best to consider the impact of rurality on the costs of service delivery, and demand, as part of our longer-term consultations on local authority funding reform.

Further support for local government

The government is under no illusions about the scale of the issues facing local government, and this Settlement will begin to address the pressures that councils are under. We recognise, however, that we may see some continued instability as we adjust to the new system. Any council concerned about its financial position or its ability to set or maintain a balanced budget should contact MHCLG. The government has a framework in place to support councils in the most difficult positions. We will not seek to replicate conditions that made borrowing more expensive. Where a council in need of exceptional financial support views additional council tax increases as critical to maintaining their financial sustainability, the government will continue to consider requests for bespoke referendum principles. In considering requests, the government will take account of councils' specific circumstances, including the potential impact on local taxpayers.

The government has committed to provide support for departments and other public sector employers for additional employer NICs costs. This applies to those directly employed by local government. More information will be provided at the provisional Settlement.

Supporting households

Many households are still feeling the impact of the prolonged cost of living crisis and the government is committed to protecting local taxpayers from excessive council tax increases. The previous government, and the Office for Budget Responsibility (OBR) in March 2024, both assumed core council tax and adult social care precept referendum principles of 3% and 2% respectively. The government is now formally confirming that it will maintain the proposed core (3%) and adult social care precept (2%) referendum principles for next year. These strike the balance between protecting taxpayers and providing funding for local authorities.

We are ensuring that households receive the support they need from programmes outside the Settlement. The Autumn Budget confirmed the extension of the Household Support Fund (HSF) for a further year, from 1 April 2025 until 31 March 2026. This will ensure low-income households can continue to access support towards the cost of essentials, such as food, energy and water. Funding of £742 million will be provided to enable the HSF extension in England, plus additional funding for the Devolved Governments through the Barnett formula to be spent at their discretion, as usual.

Proposals in the policy statement for the 2025-26 Settlement will be subject to the usual consultation process at the provisional Local Government Finance Settlement in December 2024.

This Written Ministerial Statement covers England only. The policy statement will be deposited in the House libraries, and has been published on GOV.UK: https://www.gov.uk/government/publications/local-government-finance-policy-statement-2025-to-2026